CGS CIMB, December 1, 2023

 

 

With a strong 1QFY6/24 core net profit of RM576m, up 12% qoq and 17-fold yoy, we raise our FY24F/FY25F/FY26F EPS by 38%/19%/14% to factor in higher utilities and cement earnings. All divisions (ex-construction) in 1QFY6/24 showed strong pretax profit growth yoy, a testament to a strong energy market in Singapore and an improvement in the Malaysian economy. Our TP (still based on a 20% discount to SOP) is also lifted to RM2.13 and now encapsulates our higher TP for YTL Power and MCement. YTL trades at CY24F P/E of 10x and P/BV of 1.1x on our revised forecasts. This is at its pre-2018 level of -1 s.d. from mean levels, also 1.1x P/BV, when net profits averaged more than RM1bn p.a. over FY12-17. At our revised TP of RM2.13, the stock trades at CY24F P/E of 13.5x and P/BV of 1.5x, putting valuations closer to above pre-2018 mean levels. Key downside risks are poorer earnings for its utilities business, which is anchoring growth currently, and delays in contract awards. Key rerating catalysts are awards of large-scale infrastructure projects, which will benefit its construction and cement divisions.

 

 

We think YTL can potentially pay out higher dividends on strong cashflow from its utilities and cement divisions and given the recovery in other businesses. We raise our FY24F/FY25F/FY26F DPS to 7 sen p.a. (vs. 6 sen p.a. previously) to factor in our higher earnings and a similar to our earlier payout assumptions of c.40-50%. This is also supported by our higher DPS for MCement. Further dividend upside can come from the potential injection of assets into its REITs (the most recent being the sale of Stripes Hotel in KL, owned by YTL, to YTL Hospitality REIT for RM138m), in our view. We show a potential pipeline of assets (Fig 4) with an estimated value of RM2.4bn that could be injected into its listed REITs. However, we think YTL will try to strike a balance between higher dividends, potential growth opportunities, such as bidding for KL-SG High Speed Rail (HSR), and share buybacks.

 

 

YTL’s earnings for the past few quarters have been anchored by the strong recovery in the utilities business in Singapore but we forecast a growing contribution from its more local cyclical businesses, such as construction, cement, property and hotels, over the next few years in line with the recovery in the Malaysian economy. Collectively, we expect all these divisions to contribute 25-37% of pretax profit for FY24F-26F vs. 18% in FY23. We believe YTL offers a unique proposition as the only large-cap listed FBM KLCI component stock with twin engines of growth via its construction and cement arms. This will enable it to capitalise on more project flows in the public sector (MRT 3 and HSR) and industrial warehouse/data centre space.  

 

 

We summarise the changes in our FY24F/FY25F/FY26F revenue, EBITDA and net profit forecasts in Figure 1. The majority of our EPS upgrade is due to our higher earnings assumptions for YTL Power and MCement.               

Figure 1: Revisions to our YTL forecasts
	Previous			Revised			% change
	FY24F	FY25	FY26F	FY24F	FY25F	FY26F	FY24F	FY25	FY26F
Revenue (RMm)	28509.3	31778.9	32660.3	27,393.2	29,967.0	30,864.9	-3.9%	-5.7%	-5.5%
EBITDA (RMm)	7171.3	7163.4	6954.7	8,800.7	8,062.7	7,622.0	22.7%	12.6%	9.6%
Net profit (RMm	1337.4	1309.2	1247.4	1,838.0	1,557.2	1,416.0	37.4%	18.9%	13.5%
EPS (Sen)	12.2	11.9	11.4	16.8	14.3	13.0	37.4%	18.9%	13.5%
SOURCES: CGS-CIMB RESEARCH ESTIMATES, COMPANY REPORTS

 

 

We also lift our SOP-derived TP to RM2.13, based on an unchanged 20% holding company discount. Our higher SOP now factors in:-

i) Our increased TP of RM3.00 for YTL Power (vs. RM2.40 previously; Add)  

ii) Our higher TP of RM6.00 for MCement (vs. RM5.55 previously; Add) while imputing an unchanged value of RM1.3bn for the non-listed cement business comprising its Vietnam and Singapore terminals and Indonesia land and office, which are held under YTL.