Update 19 February on YTL & YTL Power

US stocks rose Tuesday with the S&P500 up 0.2% and the Dow Jones up 10 points.

Among the big movers on Tuesday, Intel shares soared 16% to lead Nasdaq gainers after the Wall Street Journal reported over the weekend that Broadcom and TSMC are considering bids for parts of the embattled chipmaker.

Super Micro Computer shares also surged 16% as the stock extended a rally that kicked off last week when the company issued a rosy outlook for AI-fueled sales growth.

Nvidia news

Nvidia shares went up Tuesday to recover its losses from the DeepSeek’s decline. At its intraday high of $143.44, Nvidia was trading above its January 24 close of $142.62, the trading session before Nvidia experienced the biggest one-day market value decline in history. The stock pared its gains on Tuesday to about 1%.

A 22% rally in February has boosted Nvidia shares above their 200-day and 50-day moving averages. Investors are awaiting Nvidia’s earnings results next week, with updates expected on the next-gen Blackwell GPU.

Bank of America expects Nvidia to modestly exceed earnings expectations when it reports fiscal fourth-quarter results on Feb 26. However, the bank’s analysts caution that near-term headwinds could weigh on its first-quarter outlook.

“We expect a modest Q4 beat but Q1 outlook could face headwinds from Blackwell transition, Hopper declines, and China restrictions,” BofA analysts wrote.

While Nvidia’s stock could see post-earnings volatility, they anticipate positive momentum to resume as investors look ahead to its next-generation product pipeline.

BofA maintains Nvidia as its top sector pick, emphasizing the company’s unique position as a “computing platform” rather than just a chipmaker.

The firm highlights Nvidia’s ability to integrate hardware and software optimizations, which it sees as crucial in the rapidly evolving AI market.

BofA believes Nvidia’s valuation “remains compelling” at 31x/24x projected earnings for 2025 and 2026, sitting at the lower end of its historical 25x-56x PER range.

They note that the upcoming GTC conference on March 17 could serve as a key catalyst, where Nvidia is expected to showcase its GB300 and Rubin chips and expand its total addressable market into robotics and quantum computing.

The yield on 10-year Treasuries was at 4.55%, up from 4.48% at Friday’s close. The yield jumped as high as 4.66% last week after disappointing inflation data raised concerns about whether the Fed would be in a position to cut rates this year.

U.S. and Russia discussed Ukraine, and renewing ties

Senior U.S. and Russian officials agreed yesterday not only to work together on ending the war in Ukraine, but also to cooperate on financial investment and re-establishing normal relations. The negotiations were the most extensive in years between the two global powers.

The meeting, which took place in Saudi Arabia, was a head-spinning reset of the Russia-U.S. relationship after three years of Western efforts to isolate Moscow for invading Ukraine in 2022. President Trump again demonstrated his intention to roll back an approach toward Moscow that has included sanctions, isolation and weapon deliveries to Ukraine. He also showed his willingness to cast aside the worries of European allies.

Speaking to reporters after the meeting, U.S. officials did not dwell on Russia’s violation of international law in attacking Ukraine, the war crimes Moscow has been accused of, or the three years of devastation caused by Russian shelling and bombardment. Instead, they repeatedly praised Trump for trying to stop the fighting by talking to Russia in a way that President Biden had not.

What’s next: Rubio said that the U.S. would engage with Russia about what the end of the war would look like. Both countries would negotiate how to remove restrictions on their embassies in Moscow and Washington and explore new partnerships in geopolitics and in business.

What else is on the table: Russia appeared to use the talks to cater to Trump’s interest in profits and natural resources, arguing that U.S. oil companies and others stood to gain hundreds of billions of dollars by doing business in Russia again.

Ukraine: President Volodymyr Zelensky, angered that Ukraine had not been invited to the meeting, said he was postponing his own visit to Saudi Arabia, which was planned for today.

Hamas said it would return remains of Israeli hostages

Hamas’s chief negotiator said yesterday that militants intended to hand over the remains of four Israeli hostages to Israel tomorrow in exchange for the release of Palestinian prisoners. He and the Israeli prime minister’s office also said the number of living hostages scheduled to be released on Saturday would be increased to six from three.

The Hamas negotiator said that members of the Bibas family — some of the most well-known hostages worldwide — would be among the four bodies handed over tomorrow to Israel. Israel did not confirm or comment on that announcement.

Lebanon: Israeli forces yesterday retained control over strategic border points in southern Lebanon as a deadline passed for both Israel and Hezbollah to leave the region.

Displacement: Thousands uprooted by the war in Lebanon have been unable to reach towns occupied by Israel, but some have tried anyway.

Glove Stocks Sell-off

Yesterday big glove stocks Hartalega, Kossan and Top Glove saw their shares sold off in the afternoon, each with double-digit loss. The trigger was a weaker-than-expected quarterly result announced by Hartalega over lunch, but the big sell-off appeared to start after 3.30pm at the end of the company’s earnings conference call. The company gave a lacklustre outlook for the rest of the year, and big funds were seen selling off their positions.

Foreign funds were buying big into glove stocks in past few months, and local analysts were seen calling Buy on most glove stocks after a turnaround in earnings for most of the glove companies last year. But earnings announced since have not shown much improvement. I have always been bearish on glove outlook since 2021 and have not recommended any glove stock since, but was amazed at how some of the local analysts tried to spin the story for a super bullish outlook for the glove sector while ditching traditional utility and defensive stocks like AEON and YTL Power.

Fellow investors are advised to do own studies on the stocks recommended by these local analysts, especially those from CIMB, MIDF and Maybank, who obviously have own agenda in trying to recommend these high risk stocks.

Singapore Budget 2025

In his presentation of Budget 2025 for Singapore, PM Lawrence Wong pledged to top up the Changi Airport development fund by S$5 billion to support the development and growth of the aviation industry in Singapore.

Singapore needs to make major investments in energy and infrastructure, and he will also top up the Future Energy Fund by S$5 billion.

The higher spending on infrastructure projects in Singapore bores well for contractors like YTL who commands a good market share of the cement and building materials market in Malaysia and Singapore. The recently acquired NSL will help to spur ahead jobs for YTL in Singapore in coming years.

YTL & YTL Power Q2 Results

I gather that YTL and YTL Power will announce their Q2 FY2025 results either this evening or tomorrow Thursday evening. Let’s update some of the earnings projection for YTL Power.

PowerSeraya is expected to deliver steady earnings as in Q1 FY25, i.e. about SGD180 million net profit or SGD217 million (RM725m) pretax profit.

Wessex Waters will deliver similar level of pretax profit as in Q1 - about RM50-60 million pretax, typically very stable profits from the water/sewerage business disrupted by only inflation index adjustments on its index-linked bonds

Yes 5G will at best break even or deliver a small profit - so negligible for now

Jawa & Jordan Power - will deliver steady pretax profit of about RM180 million every quarter

Brabazon property - as it has delivered 150 homes by April 2024, and over 300 homes by Jan 2025, I estimate that it delivered some 100 keys in Q2 FY2025 (Oct-Dec 2024) as more buyers rushed to complete the sale & purchase before 1 April to avoid extra stamp duty.

And I have to put in some depreciation charge in to calculate the potential profit, having learnt the lesson from IOIPG’s IOI Central Boulevard which started to expense off interest expense in the September quarter after it started to recognise rental income. Assuming total infrastructure costs of GBP500 million for initial land work, building basic infra and roads, and depreciation period of 50 years, I estimate the depreciation charge to be about GBP10m a year.

Assuming a gross margin of GBP50k per house, the gross profit will be GBP5m a quarter and pretax profit will be about GBP2.5 million a quarter after depreciation charge. Hence I project for a pretax profit contribution of about RM15 million from Brabazon to YTL Power in Q2 FY2025.

Colocation Data Centre - this segment is expected to incur a small loss in Q2 due to the start of recognition of depreciation charge and interest expenses, as it started recognising leasing income from SEA Ltd for the first 8MW.

Based on AmResearch’s initial estimate of RM80-100m pretax profit a year for the 32MW colocation data centre with SEA Ltd, I estimate that the EBITDA will be:

EBITDA = pretax profit + depreciation charge + interest expenses

= RM80-100m + RM1.5bn/15 yrs + RM1.2bn x 5% p.a.

= RM80-100m + RM100m + RM60m a year

= RM240 - 260 million a year for 32MW colocation DC with SEA Ltd

As only 8MW has been commissioned and is earning leasing income, the EBITDA for the first phase of 8MW will be about RM60-65 million a year or RM15-16 million a quarter.

Hence, for Q2 FY2025, the first phase of 8MW colocation data centre shall incur a loss of:

pretax loss = RM15-16m - RM100m/4 - RM60m/4

= RM25 million for Q2 FY2025

The next phase of 8MW is under construction and will be commissioned by end March 2025, so the EBITDA will double up to RM30m and pretax loss will drop to RM10 million in Q4 FY2025.

When all the 32MW is delivered sometime towards end of the year or in 2026, then EBITDA will jump up to RM240-260m a year and pretax profit will get to RM80-100m a year. There are signs that SEA Ltd will accelerate the remaining 2 phases, and add more phases at YTL Kulai DC Park in following years, as SEA Ltd has decided to swift over half of their existing data centres in Singapore to Johor over the next few years.

All in, I estimate total pretax profit to be:

PowerSeraya - RM725m

Wessex Waters - RM50-60m

Yes 5G - negligible

Jawa/Jordan Power - RM180m

Brabazon - RM15m

Colocation DC - (RM25m)

TOTAL PBT = RM950 million est.

Total net profit = RM770-780 million core

That would be slightly better than the core net profit of RM742m registered in Q1 FY2025. YTLP in Q1 booked in a forex loss of ~RM271m for Jordan shareholders’ loan, which may be partly written back in Q2.

For YTL, it should deliver core profit before tax of about RM1.1 billion for Q2 FY2025, in the absence of the forex loss booked in at YTL Power’s Jordan subsidiary.

There was no notable selling nor buying by foreign funds on YTL Power shares yesterday, with the trading volume felling to below 10m shares yesterday. I suspect the selling yesterday on YTL Power was caused by the general weak sentiment in Bursa market after the big selling on glove stocks in late afternoon.

Foreign funds net bought RM12m worth of Genm shares yesterday, indicating continued buying interests of these funds into this under-valued gaming stock. Again, the selling down on Genm yesterday afternoon might have been due to the general weak market sentiment after the big drop in glove stocks.

As expected, foreign funds sold big on glove stocks yesterday, with a net sale of RM121m of Harta shares, RM35m of Top Glove shares, RM13m of Kossan and RM6m of Supermax shares.

Net short positions on YTL Power increased slightly again to 29.2 million shares at close Tuesday, same for Genting with net short positions creeping up to 51.1m shares. Net short positions on Genm reduced by 5.4m shares to 115 million yesterday.