YTL Corp’s comeback got stronger with a 2nd consecutive quarter of outperformance. The group reported 3QFY23 net profit of RM414m, bringing 9MFY23 earnings to RM548m. This accounted for 220%/248% of our/consensus’ full-year estimates. Topline grew +19%yoy driven by growth across most business segments.
Coupled with strong core margin uplift, bottomline turned around from a core net loss of -RM123m in 3QFY22 to a net profit of RM414m in 3QFY23. Utilities division earnings (+391%yoy) were the core driver of the 3QFY23 growth as Seraya is benefitting from higher prices in the Singapore electricity market. Given a tighter market from minimal new capacity and sustained strong demand, Singapore’s reserve margins are expected to gap down to a range of 29%-34% in CY23 from 46%-53% in CY22, based on the EMA’s projection. This level of reserve margin is expected to sustain until CY25, at least, suggesting Seraya’s strong earnings could be sustained in the near to mid-term. Seraya was also boosted by a contribution from Tuaspring from June 2022, which effectively increased its capacity by an estimated 16%. Wessex Water remained in the red in 3QFY23 given inflationary cost pressure, but an average 9% tariff hike from 1st April 2023 is expected to lift it back into the black.
Cement division was another key driver, the division registered a +19%yoy topline growth and a +130%yoy PBT growth driven by higher demand and higher ASPs PBT margins almost doubled to 9.7% in 3QFY23. We reckon lower coal prices (which has more than halved from a peak of USD464/MT back in 1QFY23) also contributed to the improved margins. Coal prices have reduced further since Mar’23 to the latest USD144/MT, which bodes well for cement margins going forward. Other than the cement division, YTL’s hotel operations continued to stage a strong recovery riding on easing pandemic restrictions – earnings have now exceeded pre-pandemic levels.
Given the strong outperformance, MIDF raises the FY23F/24F net profit by +191%/+134% to reflect an upward revision of YTL Power earnings as well as higher cement ASP and margins. BUY reaffirmed. The house raises its SOP-derived TP to RM1.05 (from RM0.83) to reflect upwards revisions to TPs for YTL Power (RM1.54 from RM1.12 previously) and Malayan Cement (RM3.74 from RM2.61 previously).
