YTL Power has been one of the top-performing stocks in the Malaysian market over the past two years. In 2023, its share price jumped 268%. By 2024, YTL Power's stock price nearly doubled, briefly surpassing a market cap of 40 billion ringgit. Although the price has since pulled back, it has still risen nearly 30% year-to-date.

What’s behind this remarkable growth? The answers can be found in three key areas in its financial reports: core business, potential growth areas, and financial health.

1. Core business

YTL Power is a diversified company operating in four main sectors: power generation, water and wastewater management, telecommunications, and investments. To pinpoint its core business, we can look at both revenue and profit contributions.

Power generation is the most significant segment in terms of revenue. Over the past few years, it has consistently accounted for more than 50% of total revenue, increasing to 74.1% in FY2023. Although it dipped to around 68.4% in FY2024, power generation remains the primary revenue source.

When it comes to profit, the contribution from power generation is even more crucial. YTL Power reports the pre-tax profits for each of its four business segments. In FY2024, the pre-tax profit from power generation was RM 3.69 billion. This sector accounted for over 90% of the company's pre-tax profit. The other three segments—water services and telecommunications—were still operating at a loss. While the investment business was profitable, it remained relatively small in scale. This discrepancy is mainly because the water and telecommunications segments were operating at a loss, and the investment segment generated some profit but on a relatively small scale.

Therefore, both in terms of revenue and profit, the power generation business is YTL Power's dominant segment and primary focus. The surge in YTL Power's stock price over the past two years is largely due to the performance of this segment.

Although headquartered in Malaysia, YTL Power's core power generation business is mainly based in Singapore. According to Statista, the company was the fourth-largest power supplier in Singapore in 2023, with about a 13.1% market share.

In previous years, the power generation business had mediocre revenue and often incurred losses. However, this changed dramatically in the past two fiscal years. In FY2022, revenue reached RM 12.75 billion, a 102.7% increase year-over-year. This grew further to RM 16.22 billion in FY2023, a 27.5% increase.

However, for FY2024, revenue from the power sector was 15.24 billion, reflecting a slight decline. This may be a key reason for YTL Power's price surge followed by a pullback this year.

In terms of pre-tax profits from the power generation business, YTL Power saw impressive growth of 1.2 times in FY2022 and 2.6 times in FY2023. In FY 2024, despite a decline in revenue, pre-tax profit is expected to continue growing, reaching approximately 3.69 billion ringgit, an increase of about 50% year-on-year.

The recent turnaround in YTL Power's power generation performance is largely due to significant increases in electricity prices in Singapore. Since the second half of 2020, Singapore’s electricity prices have surged from under 20 cents/kWh in Q3 2020 to over 30 cents/kWh in Q3 2022, a rise of more than 50%. Although prices have slightly adjusted, they remain stable at around 30 cents/kWh. As a power supplier, YTL Power was one of the biggest beneficiaries, experiencing significant revenue growth for two consecutive years. Although revenue growth has stalled this year, improved profit margins have led to a spectacular surge in net profit.

Looking ahead, we need to monitor the trend of electricity prices in Singapore. If prices remain high, YTL Power's power generation business is likely to maintain strong performance. However, if prices decline, it could put pressure on the company's results.

2. Potential growth areas

With Singapore's electricity prices reaching high levels, YTL Power's growth driven by rising electricity prices over the past two years may become unsustainable. However, according to their financial reports, YTL Power has several growth opportunities to watch.

First, YTL PowerSeraya, a subsidiary in Singapore, will purchase 100MW of electricity from another YTL Power subsidiary in Malaysia. This internal transaction is expected to increase the revenue of YTL Power’s Singapore operations, accounting for about 1.5% of Singapore's peak electricity demand.

Second, a waste-to-energy plant project is expected to bring additional income. In August 2023, YTL Power announced a partnership with KDEB, a waste management company under the Selangor government, to build a waste-to-energy plant in Rawang. The plant is expected to process 2,400 tons of waste daily, with a planned total generating capacity of about 58MW.

Third, the electric vehicle (EV) charging station project could open new revenue streams. YTL PowerSeraya, in collaboration with several companies, successfully bid for a project with Singapore's Land Transport Authority to build at least 1,200 EV charging points in HDB public housing estates. This initiative is expected to generate new revenue channels from service fees.

Fourth, and most anticipated by the market, maybe the progress in YTL Power's data center business. At the end of 2023, YTL Power announced a partnership with NVIDIA to invest RM 20 billion in building an AI data center in Johor, Malaysia. The facility, which houses the fastest supercomputer in Malaysia by mid-2024, could start generating revenue by the end of 2024. Additionally, the company plans to develop a large-scale solar power facility with a capacity of up to 500MW to supply the data center, representing another potential growth area.

The booming AI industry heavily relies on significant computing power, underpinned by electricity. By leveraging its core strength in power generation, YTL Power is making a strategic shift towards green energy while tapping into the AI sector's growth, unlocking strong potential growth opportunities.

In future financial reports, we can continue to monitor the progress of these four potential business expansion areas and their impact on YTL Power's performance.

3. Financial risks

Despite YTL Power's strong growth over the past two fiscal years and several potential growth drivers for future reports, there are still some financial risks to consider.

Firstly, YTL Power’s debt-to-asset ratio has decreased slightly over the past few quarters but remains high at about 70%.

In terms of debt serviceability, the net debt ratio (interest-bearing debt/cash and cash equivalents—1) was about 3.3 times at the end of Q4 FY2024, remaining relatively high.

Currently, YTL Power maintains good profitability, keeping financial risks relatively under control. However, the expansion plans mentioned earlier, such as new power plants, require substantial capital investments.

On one hand, significant funds are needed to invest in new ventures; on the other hand, these new businesses may not generate enough profit in the short term to cover the costs and cash flow demands. Consequently, YTL Power's debt-to-asset ratio and net debt ratio are likely to increase in the coming quarters, heightening overall financial risk.

Therefore, in future financial reports, it's crucial to closely monitor YTL Power's financial risk levels. If the debt ratio rises significantly while net profit does not keep pace, it may be a cause for concern.

In summary,

For YTL Power's financial reports, we can focus on three key aspects: core business, potential growth areas, and financial risks.

1. Core business: YTL Power’s primary revenue and profit driver is its power generation business. To track its performance trends, we should monitor electricity prices in Singapore.

2. Potential growth areas: These include the new electricity purchase from Malaysia by YTL PowerSeraya, the new waste-to-energy plant, the EV charging station project, and the highly anticipated data center project.

3. Financial risks: Currently, YTL Power's debt ratio is already high. The expansion of several future projects may further increase the debt ratio, raising financial risks.