YTL Power's outlook turned bullish

KUALA LUMPUR: YTL Power Bhd's outlook has turned bullish with a research house expecting the group's earnings to start improving by late 2020.

Affin Hwang Capital has upgraded the stock to "buy" from "sell" and raised its target price to 95 sen from 85 sen previously.

"We expect the group’s earnings to start improving by late-2020, when its loss-making Singapore operations turn around and its 45 per cent-owned associate APCO starts contributing," the firm said in a note.

"While we expect YTL Power to report another earnings decline in financial year 2020, the group’s profitability should start improving in financial year 2021," it added.

After three to four years of a challenging operating environment, Affin Hwang expects the market in Singapore to consolidate, as the overall capacity will be reduced by another 10 per cent within the next two years, lowering the reserve margin to below the 30 per cent minimum set by the Energy Market Authority.

"We expect the wholesale selling price to rise to the Uniform Singapore Energy Price (USEP) level or higher," it said.

Affin Hwang Capital said affected by the overcapacity in the Singapore wholesale energy market, YTL Power's Power Seraya and its peers were loss-making, and this had forced one of its competitors, Hyflux, to file for bankruptcy protection.

The firm said YTL Power's valuation looked undemanding and too cheap to ignore.

It said the widening discount could be due to investors’ concerns on further profit declines.

"We anticipate its valuation multiple (and share price) should re-rate ahead of the earnings recovery. We don’t think it’s fair to prescribe negative value to any of its entities, as their debt has no recourse against other entities within the group," it added.

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