KUALA LUMPUR (June 28): CGS-CIMB Securities Malaysia maintained its 'add' call on YTL Corp Bhd due to inexpensive valuations, higher dividends and possible sale of peripheral assets, while citing the high-speed railway (HSR) project as a potential re-rating catalyst for the stock.

CGS-CIMB analyst Chong Tjen-San has maintained the ‘add’ call on YTL, which reaffirmed it was one of the five companies shortlisted for the HSR project, confirming The Edge report in its May 8, 2023-May 14, 2023 issue.

CGS said the key takeaways from a roadshow held by the company recently included RM1 billion in dividends per annum to be paid, translating into dividend per share (DPS) of 9.5 sen and yield of 10% per annum for both FY24F-25F (versus its forecast of 6 sen per annum for FY24-25F).

“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 (as at FY22),” it said.

The caveat, said CGS-CIMB, is that there needs to be stability in the cyclical cement and construction businesses with key projects such as MRT3 and HSR being rolled out.

Regardless, it noted that core assets, such as MCement, including the Vietnam venture, core land bank of 165 acres in Sentul, Power Seraya and Wessex Water are not for sale.

It noted the most recent asset disposed of was land in Perak, which will bring in cash of RM70 million.

Chong maintained the ‘add’ call with an unchanged TP of RM1.28 based on a 20% discount to SOP.

“YTL trades at 12 times price to earnings (P/E) and 0.8 times price-book value (P/BV) for calendar year 2024 forecast (CY2024F), which, in our view, is inexpensive given the strong earnings visibility driven by a recovery in cash generating utility profits and also cement earnings,” he said in a note on Tuesday (June 27).

Chong said that YTL believes the current government will return to business and accelerate project flows post the state elections.

“The bid for Boustead Plantations is related to the expansion of its data centre business,” he added.

Boustead Holdings Bhd has clarified on June 20 that it has not entered into any agreement to sell its 57% stake in Boustead Plantations.

On Power Seraya’s sustainable profitability in light of Singapore’s temporary price cap mechanism in July, Chong said YTL believes profits from Power Seraya in the third quarter of FY2023F (3QFY23F) can sustain the business for the next three years and the government’s intention is 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.”

At the time of writing, YTL Corp's share price remained unchanged at 95.5 sen, with a market capitalisation of RM10.47 billion.

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