YTL Power retains upside potential, driven by its data centre valuation

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YTL Power upside potential

Highlights

YTL Power’s water and sewerage segment profit before tax more than doubled to RM870 million, supported by tariff increases at Wessex Water in the UK.
The data centre segment’s profit before tax for 4QFY2026 surged more than 300% quarter-on-quarter to RM244.3 million, with the full 150MW of operational capacity contributing.
YTL Power spent RM7.91 billion on assets in FY2026 and total borrowings rose to RM39.88 billion, increasing execution risks despite positive expansion prospects.

This article was translated from the original. Read the original version by our correspondent here.

Data centre capacity and execution risks

According to The Edge Malaysia, the water and sewerage segment moved in the opposite direction, with segment profit before tax more than doubling to RM870 million, aided by higher tariffs at Wessex Water in the UK and the domestic operations of Ranhill Utilities Bhd in Johor. Wessex operates under a model regulated by the Water Services Regulation Authority, and Ofwat’s latest five-year regulatory settlement allows water companies to raise bills to fund major investment programmes through 2030.

However, the market’s main focus remains on data centres, which were first disclosed as a separate business segment in 3QFY2026. For 4QFY2026, profit before tax surged more than 300% quarter-on-quarter to RM244.3 million as the full 150MW of operational capacity contributed throughout the quarter, although MBSB Research estimated that outstanding adjustments related to the annual escalation clause in contracts accounted for around 30% of revenue and 50% of profit before tax for the quarter.

Excluding this effect, the research firm estimated underlying revenue of around RM320 million and profit before tax of RM122 million, implying a margin of around 38%. At the same time, YTL Power stated that 298MW of capacity had been contracted, although only 150MW was operational and generating revenue at the end of FY2026, while capacity at its Kulai data centre campus in Johor had been increased to 1.2GW and a new 145-acre site could accommodate an additional 1.2GW.

The expansion outlook is also supported by YTL Power and Ganda Power’s order for seven Siemens Energy SGT-9000HL gas turbines, which can support more than 5.25GW of combined generation capacity. TA Securities noted that global lead times for gas turbines exceed five years, making access to such equipment an advantage as utilities race to add generation capacity.

Several research firms also see a potential listing of the data centre segment or other capital market moves as additional catalysts. MBSB Research said management is seeking credit ratings and establishing a sukuk programme for the data centre business while considering a corporate listing versus a real estate investment trust structure.

While sentiment remains positive, execution risks are becoming increasingly important as future capacity begins to be priced into valuations. YTL Power spent RM7.91 billion on property, plant and equipment in FY2026, while total borrowings reached RM39.88 billion at the end of June, and JP Morgan also flagged risks of colocation oversupply in Johor and a lack of clarity over the long-term data centre roadmap.

In our earlier article on Sunsuria’s disposal of land to Amazon Data Services Malaysia, we discussed the sale of freehold commercial land in Sepang for RM316.84 million, earmarked for data centre and digital infrastructure development. We also reviewed how the cash proceeds would be used for infrastructure works, working capital and debt reduction, with the transaction expected to be completed in the second quarter of 2027, subject to approvals and regulatory conditions.

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