YTL Corp: Beneficiary of Infra Upcycle

MIDF Research, 24 May 2024

YTL Corporation
Maintain BUY

Target Price: RM 4.19

Within our expectation but ahead of consensus. YTL Corp’s (YTL) 9MFY24 result came in within our estimates but ahead of consensus. The group reported a net profit of RM496m for its 3QFY24, which brought 9MFY24 net profit to RM1.61b, accounting for 78%/89% of our/consensus estimates.

Key takeaways. YTL saw a -4.3%qoq decline in PBT to RM1.08b primarily dragged by the utilities division, which registered a -26%qoq PBT decline to RM669m. This was due to gradually normalizing earnings at Seraya from easing pool prices and gradual renewal of retail contracts at lower prices. Nevertheless, we believe Seraya’s earnings could sustain at current levels in the near-term before the next batch of retail contract expiry kicks in. This was, and will be going forward, partly offset by gradual improvement in Wessex Water’s performance on the back of easing inflation, easing interest on index linked bonds and its annual tariff revision in April. YTL’s cement division held up well notwithstanding an -11%qoq sequential decline given Chinese New Year festivities and one-off ESOS expense recognized by Malayan Cement during the period. Broadly, given its dominant share of domestic cement supply, we expect YTL to continue benefiting from a pickup in infrastructure projects underpinned by the country’s rising development expenditure. Meanwhile, the hotel division saw further earnings improvement (3QFY24 PBT: +57%qoq) due to market share gains as well as higher occupancy and room rates across its assets.

Earnings estimates. We raise FY24F/25F net profit marginally by 2% to reflect our revised earnings estimates for Malayan Cement. Earnings for other divisions remain unchanged.

Maintain BUY. Our SOP derived TP is raised to RM4.19 (from RM2.27) to reflect: (1) Higher TP for Malayan Cement at RM6.03 from RM5.33 previously, (2) Higher TP for YTL Power at RM6.35 from RM4.22 previously, (3) Market value of YTL’s prime landbank. Our revised TP implies 20.9x FY25F PER, which is still below YTL’s 10-year historical mean PER. We continue to like YTL as a beneficiary of the infrastructure upcycle as well as the strategic venture into data centers and renewable energy via its utilities division.