A sleeping giant awakes

The Edge, July 10, 2023

Being in the right sector is always a good thing for a company. Even more exciting is when one is "in the right sector, at the right time, at the right place" — that is how Datuk Yeoh Seok Hong, managing director of YTL Power International Bhd (YTLP) sees the group.

This year, YTLP has re-emerged on investors' radar screens as its share price doubled on the back of screaming "buy" calls from analysts following the turnaround of its Singapore power business, coupled with the growth narratives on both sides of the Causeway.

A decade worth of efforts to build its foundation in Singapore's power market helped YTLP establish a unique position along the island state's power industry supply chain, just in time to benefit from Malaysia's recent decision to allow renewable energy (RE) ex-ports across the Causeway amid a scramble for the scarce resource.

At the same time, the rising data centre (DC) market in Asia and a cap on annual capacity in Singapore have diverted investors to Johor, where YTLP's 500MW green DC park — possibly Malaysia’s largest — was launched in 2022.

Riding these long-term trends, the two segments of "green energy and fast internet" will be YTLP's long-term growth focus, says Yeoh in a recent interview with The Edge at Menara YTL in Jalan Bukit Bintang, Kuala Lumpur.

"Now has come a time of opportunity for Malaysia to supplement Singapore; we must take up the first-mover advantage [and capitalise on] this growth.

“In the context of YTL, because we are in both Singapore and Malaysia, we understand what the needs are. And we are in these two main areas — green electricity and fast internet. We understand what to invest in, and what to do to get it right," says the 64-year-old Yeoh, who also sits on the board of 55.57%-parent YTL Corp Bhd as an executive director.

He is the third son of the late Tan Sri Yeoh Tiong Lay, who founded YTL Corp.

Green electricity, fast internet
YTLP's expansion beyond its traditional businesses — of water, electricity and telecommunications — rides two industry trends that accelerated during the pandemic.

The world is seeing increased digitalisation,which results in the need for large-scale digital infrastructure, as well as demand for green energy on the back of rising environmental awareness among businesses, financiers and governments.

"We have to understand that change is coming, and we need to adapt to that change," Yeoh says.

In Malaysia, demand for DC has been strong; it saw a take-up of 113MW capacity in 2022, nearly doubling Singapore's current annual cap of 60MW per annum. Apart from spillover effects from Singapore, the demand was also helped by "favourable support from local authorities, and availability of land and power", according to a Knight Frank industry report in April, which sees Malaysia as a more attractive DC location than Indonesia, Vietnam, the Philippines and Thailand.

Johor, in particular, is near to Singapore's highly sought internet exchange points to support the development of its own DC industry. Anything within 50km from the Singapore exchange point will see no difference in latency compared with Singapore DCs, according to Yeoh.

"DC [development] cannot stop, it's N+1," he says.

As the industry grows, he sees YTLP growing not just as a contractor but also as a DC developer that supplies Malaysian capacity to the international market, utilising some of its expertise in network infrastructure from its telco business.

While the DC sector has slowed down in Singapore, demand for RE is set to grow, with up to 4GW of low-carbon electricity imports targeted by 2035. The deadline for its request for proposal (RFP) for RE imports is Dec 29 this year.

Judging from the positive industry response to the lifting of Malaysia's RE export ban, competition for quota from the Malaysian government will be stiff, although Yeoh sees YTLP as being well positioned to participate in the market — not just as an importer into Singapore, but as an exporter from Malaysia as well.

"I would, of course, want to produce RE in Malaysia as a cheap base and export to Singapore, which theoretically I'm selling to myself (YTLP's YTL PowerSeraya Pte Ltd)," says Yeoh.

"It's quite different when you say you want to export, but you are not in that game. Whereas we are there, we have the power generation and retail licence.

"We have the customers [through retail arm Geneco], we are already buying electricity [wholesale] from the pool within Singapore, [and later] from outside if the law allows it. It will be cost-effective. We know how much we are going to sell it for, how much portfolio we have, how much energy we want," he says.

That said, this market will not materialise until four years' time as per the Singapore government's timeline for the imports of RE.

Nevertheless, Temasek-linked Keppel Electric has been licensed to import 100MW of hydro power from Laos.

Meanwhile, YTLP in Singapore is working on a pilot project to import 100MW from Malaysia.

Persistence pays off
The YTL group has always played the long game. The company, whose market capitalisation once peaked at RM18.86 billion in 2010, has just overcome a bad patch that had lasted a decade, beginning with investors discounting  the company's relentless attempts to compete in the mobile network business with YES.

At that time, it also entered the highly competitive Singapore power market, concurrent with the retirement of its independent power projects in Malaysia. (YTLP had the country's earliest independent power producer in 1993 and it was among the most lucrative. The last of YTLP's purchase power agreements ended in June 2021.)

Later, the Covid-19 pandemic slowed the progress of a Jordanian power plant it had invested in while COP 26 changed the narrative on fossil fuel-based power plants, prompting YTLP to end its pursuit of a new coal power plant project in Indonesia.

Nonetheless, its long-term strategy in Singapore has paid off. While some power generation and retail players had to exit the volatile market, YTLP survived to emerge as the second largest power company with over 3GW of installed capacity, which powers over 160,000 households, or a 12.2% share of the electricity retail market.

In the UK, although YTLP's Wessex Water Services Ltd faced inflationary pressures, it managed to raise rates by around 9% in April. Also, its 45%-owned Jordanian project was commissioned in May this year, with analysts expecting earnings to kick in during the coming quarters.

For the nine months ended March 2023 (9MFY2023), YTLP posted a stellar set of results as tight energy prices combined with newly acquired 356MW generation capacity in Singapore lifted the group's net profit to RM891.74 million or 11.01 sen per share, despite pre-tax losses in YES, Wessex Water and its investment segment.

Comparatively, it recorded its best group net profit of RM1.32 billion in FY2011.

Aa at end-March 2023, the group's net tangible asset stood at RM1.84 per share, compared with its share price of RM1.26 last Friday, giving it a market capitalisation of RM10.21billion.

But, there are speed bumps ahead. YTLP's bumper performance in Singapore, amid temporary shutdowns of its competitors' plants, is set to normalise following the price cap imposed by the Singapore power sector authorities this year. In the UK water sector, the public has raised concerns over an upcoming industry tariffs reviewin 2024. 

Expansions also require time and financial muscle. In the DC space, the group is investing RM1.5 billion for the first phase of the Kulai Green DC Park with72MW capacity, which will go online in 1Q2024. The entire park will require total investments of RM15 billion. As the adjacent 500MW solar farm is earmarked to supply the park, the group will be spending on land acquisitions and capital expenditure for other solar farms for the potential RE exports.

YTLP's indebtedness has risen, with net debt growing to RM21.96 billion at end-Match from RM19.57 billion as at end-FY2017 while net gearing increased to 1.43 times from 1.27 times over the same period.

Meanwhile, the loss-making telco business under YES continues to face uncertainty in the industry landscape amid the looming dual wholesale network (DWN) model that the government has principally agreed upon.

Further, YTLP is diversifying into the fintech industry with a 40% stake in a digital bank consortium that includes Singapore partner Sea Ltd. While the asset value is capped at RM3 billion in its three-year foundational phase (compared with YTLP's total assets of RM55 billion), consortium-owned digital banks set up before 2015 would have taken anywhere from two to seven years to hit profitability, according to a report by fintech market research group WhiteSight.

Will YTLP's long-term bets on digitalization and green energy pay off, or will it affect the footing it has finally re-established in its traditional utility play? "Yes, it's business. But our future is not just about that. It's the transformation," Yeoh says. "I'm saying we as a country have to focus on creating these opportunities ... These are the migrations that need to come."