Cement Business Continues to be Challenging

YTL Corp’s 9MFY17 results were below both our and consensus expectations, delivering only 58% and 64% of respective full-year estimates. The decline in profit contribution from both cement manufacturing and utilities was the main performance drag for the group. Despite the miss, we are keeping our HOLD call on the stock, mainly due to the dividend yield.

Oversupply Issues Continue

The PBT for YTL’s cement operation fell by 70% QoQ and 81% YoY to RM29mn in 3QFY17. The decline was due to continued oversupply issues, which have led to price competition; however, our channel checks suggest that some manufacturers have started to shut down production lines to help ease the issue.

Weak Results for YTL Power

YTL Power, which is the main earnings contributor for the utilities operation, also delivered weak results, with its 9MFY17 PATAMI of RM474mn significantly below our and consensus estimates due to losses from both its domestic generation business and mobile broadband, as well as a lower overseas contribution due to the stronger MYR.

Maintain HOLD and TP of RM1.70

We maintain our HOLD rating on YTL Corp with an unchanged 12-month TP of RM1.70, still based on a 10% holding company discount applied to our RNAV estimate of RM1.89. We still expect YTL Corp to deliver on the 12sen dividend given the lower capex needs for its cement business, while the group should continue to receive fairly steady earnings from its utilities division.

Risks

Key upside risks include active capital management, better-than-expected earnings from non-power division, and winning new construction projects. Key downside risks include a weak property market and a lack of new construction projects.

Source: Affin Hwang Research - 25 May 2017