Q3FY2022 Quarterly Result Summary

YTL Corp announced a set of commendable result for Q3 FY2022 (Jan-Mar 2022) with net profit of RM828.7 million, up 8.8x from last year corresponding period. The stellar result was boosted by a disposal gain in its utilities division, YTL Power.

A summary of the segmental breakdown for Q3 FY2022 and the first 9 months of RM2022 is tabulated below:

*EBIT for Q3FY2022 included a fair value loss of RM79.2m and impairment loss of RM291.5m

For first 9 months of FY2022, YTL Corp registered EBIT of RM2,240 million, minus finance costs of RM1,162 million and added Share of Profits from Associates of RM307m, we get Profit Before Tax (PBT) of RM1,385 million.

If we add back finance costs and depreciation charges of RM1,362m, we get EBITDA of RM3,909 million. If we minus off one-off items like the disposal gain of Electranet (RM1,323m), fair value loss (79.2m) and impairment loss (RM291.5), we get a normalized EBITDA of RM2,918 million for 9M FY2022, annualized to RM3,890 million which will be better than FY2021 EBITDA of RM3,505m and FY2020 EBITDA of RM3,754m.

Construction and cement divisions registered lower earnings due to shorter working days in the quarter (Chinese new year) and work disruption caused by omicron wave in Feb-Mar 2022. Hotel division recorded higher revenue and lower loss in Q3, and will register stronger growth from Q4 onwards as pandemic restrictive SOPs were eased from 1^st April and Malaysia borders re-opened from 1^st May 2022.

Utilities division revenue and earnings were higher y-on-y in Q3 due to strong rebounds in PowerSeraya earnings.

Cement Division Rebounding Strongly

Malayan Cement reported Q3 FY2022 as follow:

Revenue for Q3 FY2022 dropped 3% from Q2 FY2022 while average selling price increased by c.30% from RM210/t to RM270/t, indicating a 25% drop in sales volume.

I have earlier estimated that coal prices had increased by 40% from Q2 to Q3FY2022 and coal prices made up c. 40% of total operating costs. I may have underestimated the coal price cost increase.

Now let’s assume coal & electricity costs make up 50% of total operating costs and coal prices have increased by 40%-50% from Q2 to Q3, then operating costs will break down as follow:

Fixed overhead = RM644m x 50% = RM322m

Coal/energy cost = RM644m x 50% x 75%     = RM242m before coal price hike

                                                                        = RM352m after 45% coal price hike

Total operating cost (Q3 FY2022) = RM322m (fixed) + RM352m (coal) = RM674m

I learn that average cement prices have increased further from RM270/t in Q3 to RM320-340/t in April-May 2022. Assuming an average 20% increase to RM324/t, revenue for Q4FY2022 will increase by RM159m assuming same sales volume. Assuming coal prices increase by 20% again in Q4, then operating cost will increase by RM352m x 20% = RM70m. Hence EBITDA will increase by RM159m-70m = RM89m to RM210 million. Minus off depreciation charge of RM63m and interest expense of RM43m plus associates’ contribution, profit before tax will increase to RM116 million.

Free cash flows will be about RM116m + RM63m = RM179m per quarter, annualized to RM716 million, 25% lower than my previous estimate of RM937 million. MCement will need to have average cement prices of RM340/t throughout the year or coal prices remaining the same level as in Q3  in order to achieve free cash flows of over RM900m a year. I will cut valuation of MCement by 25% to be more conservative.

Sum-of-Parts Valuation of YTL Corp

While I cut valuation of MCement by 25%, the rest of the business segments and assets of YTL Corp remain unchanged, hence I derive the following sum-of-parts valuation for YTL:

So YTL Corp should be worth RM4.39 per share in the conservative case, 3.5% lower than my previous case. In the bluesky case as projected in my earlier article, YTL Corp should be worth RM4.39 + 1.95 = RM6.35 per share.

Please refer to my earlier article on more details of the business segments:

https://klse.i3investor.com/web/blog/detail/dragon328/2022-05-05-story-h1622437940-YTL_Corp_is_soon_becoming_another_10x_Bagger