YTL Power International Berhad: A Value Play Amidst Earnings-Valuation Disconnect

YTL Power International Berhad (KLSE:YTLPOWR), a Malaysian multinational energy and infrastructure conglomerate, presents a compelling investment paradox: robust earnings growth and a high dividend yield contrast sharply with its underperforming share price. This disconnect, amplified by a low P/E ratio and strong total shareholder return (TSR), suggests the market has yet to fully appreciate its fundamentals. Below, we dissect the opportunities and risks, arguing that YTLPOWR's valuation offers a rare long-term entry point.

The Earnings-Valuation Mismatch

YTLPOWR's trailing twelve-month (TTM) P/E ratio of 14.64 as of June 2025 is strikingly low compared to its historical average and sector peers. This metric implies the market is pricing in risks—such as ongoing MACC investigations into infrastructure projects and debt levels—rather than the company's tangible earnings power.

Despite a modest 6% dip in Q2 2025 EPS (to RM0.094 from RM0.10 YoY), the company's three-year EPS growth rate of 66% reflects resilience in core operations, particularly in power generation and cement divisions. Meanwhile, its TTM net profit margin of 15.73% and ROE of 17.35% underscore profitability. The share price, however, has lagged, falling 7.7% in the week following its Q2 results—a reaction that overstates near-term risks.

Dividends: A Steady Anchor in Volatile Markets

The company's dividend policy has been a consistent bright spot. The June 2025 dividend of RM0.04 per share—a 329% surge from prior years—bolstered its forward yield to 8.33%, among the highest in Malaysia's utilities sector. Over three years, dividend growth averaged 30%, contributing to a 585% TSR (including capital gains and dividends), far outpacing its share price return alone.

Investors seeking income and capital appreciation find value here. Even with the stock's recent volatility, the dividend's stability and growth potential suggest YTLPOWR is undervalued relative to its cash flow generation.

Growth Catalysts on the Horizon

The company's pivot toward data centers and digital infrastructure—highlighted by its partnership with NVIDIA for AI-driven supercomputers—offers a clear path to re-rating. Analysts estimate these projects could boost fair value to RM7.30 by 2026, nearly double the current price of RM3.98.

Meanwhile, its core power and utilities segments remain steady. PowerSeraya (Indonesia) and Jawa Power (Jordan) are cashflow engines, while the consolidation of NSL Ltd. in cement operations has improved margins. These assets, combined with a deleveraging trend (debt/EBITDA down to 3.13x from 8.85x in prior years), reduce liquidity risks and support a gradual return to FCF positivity.

Risks and Mitigations

The disconnect is not without justification. Key risks include:
1. MACC Investigations: Probes into 1BestariNet telecom projects could delay revenue recognition and raise legal costs.
2. Debt Exposure: Despite deleveraging, RM27.15 billion in net debt remains a vulnerability in a rising-rate environment.
3. Execution Risks: Data center projects face regulatory hurdles (e.g., U.S. sanctions on tech partners like NVIDIA).

However, these risks are already priced into the stock. The dividend policy's consistency and the low P/E reflect a conservative investor stance. If YTLPOWR delivers on its data center pipeline and resolves legal issues, a valuation rebound is probable.

Investment Thesis: Buy the Dip

YTLPOWR's low P/E, high dividend yield, and growth catalysts make it a compelling long-term play. The stock's current price of RM3.98 sits below the DCF-derived fair value of RM3.11—a conservative estimate—and well below analyst targets averaging RM4.41.

Recommendation: Accumulate YTLPOWR on dips below RM4.00, with a 12–18-month horizon. Focus on the following catalysts:
- Resolution of MACC probes (expected by late 2025).
- FCF stabilization as data center projects ramp up.
- Sector re-rating if utilities valuations recover.

Conclusion

YTLPOWR's valuation gap is an anomaly in an otherwise expensive equity market. Its earnings resilience, dividend strength, and strategic bets on high-growth sectors position it to outperform once the market reconciles its fundamentals with its price. For patient investors, this is a rare opportunity to buy quality at a discount.

Disclosure: This analysis is based on publicly available data as of June 2025. Always conduct further due diligence before making investment decisions.