Saturday, July 13, 2024

YTL Power poised to gain from UK subsidiary

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PETALING JAYA: The prospects of YTL Power Intelligence Bhd’s UK unit, Wessex Water Services Ltd, remain positive, contributing to the earnings growth of the Malaysian conglomerate.

This projection is underpinned by the excellent operational performance of the water supply and sewerage utility company, as well as the higher legal and regulatory capital expenditure (capex) requirements to preserve the environment and meet long-term water demand in the United Kingdom, according to RHB Research.

Having recently visited Wessex Water, the brokerage noted that the company had submitted its five-year business proposal (2025-2030) to the UK water services regulation authority, including a higher return and capex allocation of £3.5bil over the next years, compared to £1.4bil previously.

“We understand that the significant spike is mainly driven by legal or regulatory requirements on river health led measures and could result in a 30% increase in the average bill,” RHB Research said, adding the outcome of the business proposal would likely be known by the end of this year.

Wessex Water is one of 10 regional water and sewerage businesses in England and Wales, consistently ranked as the best water and sewerage company, according to industry regulators.

The unit supplies water to 1.4 million people and around 44,000 businesses with more than 282 million litres of water per day.

It also offers wastewater treatment to 2.9 million people and around 57,000 businesses with about 888 million litres of sewage per day.

RHB Research pointed out that in the United Kingdom, water companies and government agencies are now re-evaluating strategies for water conservation and drought preparedness.

“There are also long-term plans to ensure long-term water demand is met especially when there is a requirement to reduce underground water supply by giving back the water to the environment for sustainable abstraction and preservation.

“The Mendip quarries has been identified as a potential future reservoir site,” it said.

“The project is estimated to cost £1.1bil – it is still under the development stage and no final investment decision to be achieved. Wessex Water will push through this project in the upcoming regulatory review in 2031 to 2035,” it added.

Besides the positive contribution from Wessex Water, RHB Research remained optimistic about the prospects of other business segments under YTL Power, in particular, the group’s artificial intelligence-data centre (AI-DC) development.

As such, the brokerage reiterated “buy” on YTL Power, with an unchanged sum-of-parts-based target price of RM6.68.

Overall, RHB Research said it was positive over the conglomerate’s long-term earnings potential from its AI-DC development, with the near-term catalyst being the conclusion of the offtaker for the first 20 megawatt (MW) of the 100MW AI-DC project.

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