YTL’s PATAMI for 1HFY18 has contracted by 14.2% yoy to RM269m, and is tracking behind consensus and our expectations, accounting for only 45% of estimates. However, we tweak our earnings upwards by 1.8%-1.9% as the cement and construction business is tracking above our expectations. We raise our TP to RM1.40, as we roll forward our valuation base to FY19E, but maintain our HOLD call.

Cement Continue to Show Improvement

The EBIT for the cement segment has more than doubled during the quarter, which came in as a positive surprise to us, due to the cement overcapacity affecting the industry. The improvement was due to stronger sales volume and higher margin, as YTL has successfully gained market share in 2Q. While we are doubtful that YTL can maintain a similar growth rate for subsequent quarters, as its peers has started increasing their rebates to retain market share, we believe that a flattish qoq is commendable under current market environment. Further improvement in the cement business, is key to any upside for a higher DPS payout.

Still Optimistic About the Outlook

Stripping out the gain from the land sale in 1QFY18 from its property division, 2QFY18 PBT should be up by 27% qoq instead of the -10% qoq. While the overall earnings for the 1HFY18 fell short of both our and consensus expectation, it is back on the right track, supported by the improving performance from the cement segment. Apart from that, the construction segment contribution is also expected to rise with the recently secured Gemas-JB electrified double-tracking railway project, however details of the project is still very limited. There could be further upside if YTL (part of a consortium) were to secure the PDP or Asset Co role for the Malaysia-Singapore High Speed Rail (HSR) project.

Maintain HOLD With a Slightly Higher TP of RM1.40

We have tweaked our EPS for FY19E-20E by 1.8%-1.9% to incorporate a stronger cement recovery and also a higher construction contribution in view of the recent project win. We also raise our RNAV-based 12-month TP to RM1.40 (from RM1.30), as we roll forward our valuation base to FY19E, but are maintaining our HOLD call.

Source: Affin Hwang Research - 26 Feb 2018