Q4FY2022 Quarterly Result Summary

YTL Corp announced a good set of result for Q4 FY2022 (Apr-Jun 2022) with core net profit of RM167 million, a big turnaround from last year corresponding period.

* one-off gain from disposal of Electranet

^ one-off gain from disposal of Dama Cement China

A summary of the segmental breakdown for Q4 FY2022 and the full year of FY2022 is tabulated below:

^ Included a one-off gain of RM448m from disposal of Dama Cement China

For the full year of FY2022, YTL Corp registered Profit Before Tax (PBT) of RM1,559 million, boosted by the one-off gain of RM1,323 million from the disposal of Electranet.

If we add back finance costs of RM1,587m and depreciation charges of RM1,840m, we get EBITDA of RM4,985 million. If we minus off one-off items like the disposal gain of Electranet (RM1,323m), fair value loss (RM153.7m), impairment loss (RM193.9m) and project development costs written off (RM189.0m), we get a normalized EBITDA of RM4,199 million for FY2022 which will be better than FY2021 EBITDA of RM3,971m.

The Construction division registered lower earnings due to higher construction costs incurred. Hotel division recorded higher revenue and lower loss in FY2022 due to better performance of its hotels and resorts following the easing of movement restriction in the UK and Malaysia .

Utilities division revenue was higher y-on-y but earnings were slightly lower y-on-y in FY2022 due to strong rebounds in PowerSeraya earnings offset by lower profit contribution from Wessex Waters.

Cement Division Rebounding Strongly

Malayan Cement reported Q4 FY2022 as follow:

Revenue for Q4 FY2022 increased 1.3% from Q3 FY2022 despite a 8% drop in cement sales volume. This was due to higher average selling price of about RM330/tonne, c.10% from RM270/t – RM300/t.

Using my earlier assumption that coal & electricity costs make up 50% of total operating costs and coal prices have increased by c.10% from Q3 to Q4, then Q4 FY2022 operating costs may be broken down as follow:

Fixed overhead = RM674m x 50% = RM337m

Coal/energy cost = RM674m x 50% x 92%     = RM310m before coal price hike

                                                                        = RM341m after 10% coal price hike

Total operating cost (Q4 FY2022) = RM337m (fixed) + RM341m (coal) = RM678m close enough to actual figure of RM665m.

I learn that average cement prices have increased further from RM330/t in Q4 to RM360/t in July-Aug 2022. Assuming an average 10% increase, revenue for Q1FY2023 will increase by RM80m assuming same sales volume. Assuming coal prices increase by 10% again in Q1FY2023, then operating cost will increase by RM332m x 10% = RM33m. Hence EBITDA will increase by RM80m-33m = RM47m to RM186 million. Minus off depreciation charge of RM68m and interest expense of RM42 plus associates’ contribution, profit before tax will increase to RM86 million.

Free cash flows will be about RM86m + RM68m = RM154m per quarter, annualized to RM616 million, 14% lower than my previous estimate of RM716 million. MCement will need to have average cement prices of RM360/t throughout the year and coal prices retreating by 20% from Q4FY2022 level  in order to achieve free cash flows of over RM900m a year. I will maintain valuation of MCement for now as there is a possibility for coal prices to retreat from multi-decades highs (Brent crude oil prices have since retreated by over 10% in last 2 months).

Sum-of-Parts Valuation of YTL Corp

As I maintain valuation for Mcement, 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, which is 680% higher than its current share price. In the bluesky case as projected in my earlier article, YTL Corp should be worth RM4.39 + 1.95 = RM6.35 per share.

At current share price of RM0.57, YTL Corp is trading at just 10% of what it should be worth. Key catalysts will be earnings jump in YTLPower, Mcement and news on HSR revival.