YTL Corporation Bhd’s prospects and outlook are viewed positively by CGS-CIMB at the back of its strong quarterly core net profit, contributed by rising energy market in Singapore and Malaysian economy recovery.
Thus, the research house raises its FY24F/FY25F/FY26F EPS by 38%,19%,14% respectively to factor in higher utilities and cement earnings.
It reiterates ADD rating and lifting its SOP-derived TP to RM2.13, based on an unchanged 20% holding company discount. At the revised TP is with the stock trades at CY24F P/E of 13.5x and P/BV of 1.5x, putting valuations closer to above pre-2018 mean levels.
“Our higher SOP now factors in increased TP of RM3.00 for YTL Corp compared to RM2.40 previously and our higher TP of RM6 for MCement compared to RM5.55 previously.
“(This is) while imputing an unchanged value of RM1.3 billion for the non-listed cement business comprising its Vietnam and Singapore terminals and Indonesia land and office, which are held under YTL Corp,” it said in its
It said YTL Corp’s earnings for the past few quarters have been anchored by the strong recovery in the utilities business in Singapore.
“However, we forecast a growing contribution from its more local cyclical businesses, such as construction, cement, property and hotels, over the next few years in line with the recovery in the Malaysian economy.
“Collectively, we expect all these divisions to contribute 25 to 37% of pretax profit for FY24F-26F compared to 18% in FY23,” it said.
CGS-CIMB said YTL Corp can potentially pay out higher dividend on strong cashflow from its utilities and cement divisions and given the recovery in other businesses.
The research house raised its FY24F/FY25F/FY26F DPS to 7 sen per annum versus 6 sen per annum previously to factor in higher
earnings and a similar to our earlier payout assumptions of between 40 and 50%.
“This is also supported by our higher DPS for MCement. Further dividend upside can come from the potential injection of assets into its REITs (the most recent being the sale of Stripes Hotel in KL, owned by YTL, to YTL Hospitality REIT for RM138m), in our view.
“We show a potential pipeline of assets with an estimated value of RM2.4 billion that could be injected into its listed REITs.
“However, we think YTL Corp will try to strike a balance between higher dividends, potential growth opportunities, such as bidding for KL-SG High Speed Rail (HSR), and share buybacks,” it said.
“We believe the group offers a unique proposition as the only large-cap listed FBM KLCI component stock with twin engines of growth via its construction and cement arms.”
Key downside risks are poorer earnings for its utilities business, which is anchoring growth currently, and delays in contract awards while key rerating catalysts are awards of large-scale infrastructure projects.
