YTL Corp Bhd
(Feb 26, RM1.49)
Maintain hold with a higher target price (TP) of RM1.40: YTL Corp Bhd’s profit after tax and minority interests (Patmi) or first-half financial year 2018 (1HFY18) has contracted by 14.2% year-on-year (y-o-y) to RM269 million, and is tracking behind consensus and our expectations, accounting for only 45% of estimates. However, we tweak our earnings upwards by 1.8% to 1.9% as the cement and construction business is tracking above our expectations. We raise our TP to RM1.40, as we roll forward our valuation base to FY19E (estimates), but maintain our “hold” call.
The earnings before interest and tax for the cement segment has more than doubled during the quarter, which came in as a positive surprise to us, due to the cement overcapacity affecting the industry. The improvement was due to stronger sales volumes and higher margins, as YTL has successfully gained market share in the second quarter (2Q). While we are doubtful that YTL can maintain a similar growth rate for subsequent quarters, as its peers have started increasing their rebates to retain market share, we believe that a flattish quarter-on-quarter (q-o-q) is commendable under current market environment. Further improvement in the cement business, is key to any upside for a higher dividend per share payout.
Stripping out the gain from the land sale in 1QFY18 from its property division, 2QFY18 profit before tax should be up by 27% q-o-q instead of the -10% q-o-q. While the overall earnings for the 1HFY18 fell short of both our and consensus expectations, it is back on the right track, supported by the improving performance from the cement segment. Apart from that, the construction segment contribution is also expected to rise with the recently secured Gemas-Johor Baru electrified double-tracking railway project, however, details of the project are still very limited. There could be further upside if YTL (part of a consortium) were to secure the project delivery partner or asset company role for the Kuala Lumpur-Singapore high-speed-rail project.
We have tweaked our earnings per share for FY19E to FY20E by 1.8% to 1.9% to incorporate a stronger cement recovery and also a higher construction contribution in view of the recent project win. We also raise our revalued net asset valuation-based 12-month TP to RM1.40 (from RM1.30), as we roll forward our valuation base to FY19E, but are maintaining our “hold” call. — Affin Hwang Capital Research, Feb 26