YTL reported a disappointing set of results for 1HFY20, as corePATAMI of RM32m (-81% yoy) only constituted 13% of our and consensus full-year forecasts. The weaker-than-expected performance of both the utilities and property segments was behind the earnings miss. We have cut our FY20-22E forecasts by 15-26% to incorporate our latest forecast for the utilities segment and lower our TP to RM 0.90 (from RM0.95). HOLD call maintained.

Better Cement Performance Due to Higher Prices

Although PBT for the cement business was down by 55% for 1HFY20, it recorded a major improvement in 2QFY20, as PBT for the quarter increased to RM49.5m from -RM9.5m in 1QFY20. We believe that the improved profitability was due to higher selling prices, which led to a 20% qoq growth in revenue. Despite the higher selling prices, Malayan Cement (77% owned) is still loss making due to its high cost structure. We do not think that the overall price increase in 2020 will be as significant as in 2019, as demand for cement remains lacklustre due to weakness in property demand.

Utilities and Property Surprised Us on the Downside

Despite the recovery in cement segment earnings, the profit for 1HFY20 still came in below our expectation due to weaker-than-expected performance of the utilities (YTL Power) and property segments. Earnings from the property segment were below our expectation, as we underestimated the losses from 3 Orchard By-The-Park, a property development project in Singapore. We have revised down our earnings forecasts to factor in the losses. The widening losses from YES (subsidiary of YTL Power) also came as a negative surprise to us.

Lack of Catalysts, Maintain HOLD

We have lowered our RNAV-based TP to RM0.90 (from RM0.95) as we reduce the fair value of its utilities and property segments, and cut our EPS forecasts for FY20E-22E by 15%-26%, factoring in a more challenging operating environment. Due to the lack of near-term growth catalysts for the group, we are maintaining our HOLD call. Upside risk: higher construction contract wins. Downside risks: widening losses from YES and softening demand in the Singapore high-end property.

Source: Affin Hwang Research - 21 Feb 2020