Despite benefiting from a gain on the land sale from the property subsidiary, PATAMI for the 1QFY18 at RM142m (-4.9% yoy) is below expectation, constituting only 18% of consensus and our forecast. The weaker performance can be attributed to both the higher finance cost and the higher tax rate during the quarter. As such we are cutting our EPS forecast by 18%-23%, and lower our RNAV-based TP to RM1.30, but maintain our HOLD call.

Cement Is Improving From Higher Revenue and Better Margin

Although the cement’s PBT is down by 41% yoy, we believe that the worst could be over as it has recovered from the low of RM19m in 4QFY17 to RM44.5m in 1QFY18, due to stronger revenue growth and expansion in margin. While the current EBIT margins is still less than half of its historical average, we still believe that there is still room for margin expansion, as new demand from infrastructure projects could help to absorb part of the oversupply from the industry. Recovery in the cement business, is key to any upside for a higher DPS payout.

Property Segment Help Boasted Profit Due to Major Land Sale.

PBT for the segment have more than tripled, contributing to more than 43% of the group PBT in 1QFY18. We believe that the strong performance is unlikely to continue, as its 65% owned subsidiary (YTL Land) has managed to record a RM133m gain on a major land sale during the quarter. The land sale was to the Kuala Lumpur Land Administrator for the MRT project. The better performance from the property segment has helped to compensate for the weaker construction profit during the quarter.

Maintain HOLD With Lower TP of RM1.30

We have tweaked our EPS for FY18E-20E to incorporate the higher finance and tax cost. We have also lowered our RNAV based TP to RM1.30 mainly due to cut in the fair value of YTL Power.

Risk to Our Call

Key upside risk to our call include: 1) higher-than-expected dividend payout, and 2) less intense competition in the cement segment. Key downside risk to our call include: 1) lower-than-expected construction order wins, and 2) higher coal price which will impact cement margin.

Source: Affin Hwang Research - 23 Nov 2017