We are maintaining our HOLD call on YTL Corp (YTL), with an unchanged TP at RM1.44. PATAMI at RM796m (-13% yoy) for FY17 is above our expectation but well within consensus estimates. Despite already expecting a lower DPS for the year, the announced interim DPS at 5.0sen was at the lower end of consensus estimates. The lower DPS is likely due to the weaker earnings contribution from its cement business, and the reduction in YTL Power’s DPS.

Expecting a Recovery for Cement in 2018

PBT for the cement segment operations contracted by more than 53% in 4Q17, which came in as a negative surprise to us as we didn’t foresee the oversupply in the industry to worsen significantly. Nevertheless, we still believe that the segment is likely to bottom out by end of the year, as incremental demand from the infrastructure and property segment will help absorb part of the overcapacity. Profitability of the cement business is important to the group, as it used to contribute around 20-25% of the group’s PBT, but only contributed 13% of YTL’s PBT in FY17.

Construction Will Have a Good 2018.

Although the PBT for the construction segment has tripled in FY17 to RM57m, it was mainly due to a low base effect in FY16, and also an arbitration award gain of RM34.1m in FY17. Nevertheless, stripping out the one-off gain, PBT is still up by 40%, which is still impressive. Given that there are close to RM120bn worth of rail-related contracts to be awarded from 2H17, YTL could potentially benefit from it, which will help to maintain its earnings growth for the segment. However, contribution to the group is only at 5-8% of PBT, which can hardly compensate for the lower cement profits.

Maintain HOLD With Unchanged TP at RM1.44

We have tweaked our EPS for FY18-19E and lowered our DPS estimates based on the recent payout (mainly due to the lower dividend expectation from YTL Power). As we believe that the recovery has been priced in, we are keeping on HOLD call with and unchanged TP at RM1.44.

Source: Affin Hwang Research - 30 Aug 2017