During a recent roadshow, YTL Corporation (YTL) highlighted a few key points. The organisation said RM1 billion in dividends per annum are to be paid, translating into dividend per share of 9.5 sen and yield of 10% per annum for both financial year 2024 future-2025 future.
“YTL reiterated fiscal discipline to keep its cash level at US$3 billion at any point for strategic acquisitions. It could unlock value over the next few years by paring down stakes in assets such as Power Seraya and Wessex Water via a possible listing as investors continue to discount its RM72 billion asset base,” said CGSCIMB.
The caveat is there needs to be stability in the cyclical cement and construction businesses with key projects such as MRT 3 and HSR rolled out.
Core assets, such as MCement, including the Vietnam venture, core land bank in Sentul of 165 acres, Power Seraya and Wessex Water are not for sale. Peripheral assets will be disposed of, with the most recent being land in Perak, which will bring in cash of RM70 million.
A key question was why engage with the investment community now. YTL believes the current government will return to business and accelerate project flows post the state elections and thinks the group has a key role to play. It also wants to groom the next generation, which will eventually be more involved in the business.
Another key investor concern was the sustainability of profits from Power Seraya in light of Singapore’s introduction of a temporary price cap mechanism from Jul 23.
YTL believes profits from Power Seraya in quarter three financial year 2023 future can sustain the business for the next 3 years and the government’s intention was to curb extreme price volatility and not to hinder a free market.
80% of Power Seraya’s revenue is from long-term contracts and prices are fixed and gas cost hedged; as such, it bypasses the volatility of the wholesale market (USEP). Another key question was whether the possible revival of the Kuala Lumpur-SIngapore High Speed Rail was feasible and if it can be operational by 2030.
YTL revealed that it is one of five companies shortlisted and there have been several discussions with the government. It believes there is still a land corridor available to facilitate land acquisition by the government and there could be an infrastructure-led focus by the government soon. Meanwhile, the bid for Boustead Plantations is related to the expansion of its data centre business.
“Our target price is based on a 20% discount to SOP. YTL trades at 12.0x price-earnings ratip and 0.8x price-book value for calendar year 2024 future, which, in our view, is inexpensive given the strong earnings visibility driven by a recovery in cash generating utility profits and also cement earnings,” said CGSCIMB.
Key downside risks identified by CGSCIMb are such as the poor earnings for YTL Power, which is anchoring its earnings growth, and slower rollout of construction projects in Malaysia, affecting its construction and cement divisions. Re-rating catalysts are such as the faster-than-expected rollout of MRT 3 and HSR, and the continuity in earnings recovery for utilities.
