YTL E-Solutions Bhd
Given the prevailing uncertainties in the market — underscored by weakness in the ringgit and softening consumer sentiment — we are highlighting YTL E-solutions (Fundamental: 1.95/3, Valuation: 1.7/3) again as a defensive yield stock.
To recap, the company’s crown jewel is its 60% ownership of 30MHz of the 2.3GHz WiMAX spectrum, which it leases to YTL Communications, operator of the “Yes” mobile and Internet services. Under the agreement with the latter, the company will receive a minimum RM75 million annually or 15% of the WiMAX services revenue, whichever is higher. This spectrum sharing business is expected to remain YTLE’s main earnings generator for the foreseeable future.
For FYJune2014, the Communications Technology segment, which owns the WiMax spectrum, contributed RM75.1 million or 86.5% of YTLE’s total revenue and the bulk of earnings.
While earnings growth may not be ‘exciting’, steady cashflow from the spectrum sharing agreement have enabled YTLE to consistently pay dividends over the years. In FY14, dividends were raised to 4 sen per share, up from 2 sen in FY11-FY13. This translates to a higher-than-market average net yield of 8.1%. We believe this new payout level is sustainable, supported by predictable cashflow and a strong balance sheet.
YTLE has built up quite a cash pile with nearly zero borrowings. Net cash stood at RM208.1 million as at end-March 2015, which is sufficient to pay dividends at FY14’s level for the next 4 years. Additionally, net cash is equivalent to 15.5 sen per share, or some 31% of its market capitalization.
Based on previous track record, we expect the company to declare dividends for FY15 near end-August.
Aside from the spectrum sharing business, YTLE also creates content and delivers advertising on digital narrowcast media networks — including the digital “cube” fronting Lot 10 shopping center in the Bintang Walk area and on the Express Rail Link trains to KLIA.
YTLE is 74.1% owned by YTL Corp, which also controls YTL Communications.
This article first appeared in digitaledge Daily, on August 20, 2015.