• YTL Corp (YTL) reported a very disappointing set of results, as FY20 LATAMI of RM189m was below both our and market expectations for a PATAMI of RM72m-79m
• The weaker performance was due to the lower contribution from its core operations, mainly cement, property and utilities, which recorded negative PBT growth for the year
• We lower our earnings forecasts for FY21E-22E by 15%-34% to factor in the latest development, and cut our TP to RM0.56, while keeping our SELL call

Cement Operations Still a Drag

Revenue for the cement operation was down by 50% qoq, as overall demand contracted significantly during the MCO period. Although management had undertaken some cost saving measures, they were still insufficient to keep the operation at breakeven, as it recorded a LBT of RM60m in 4QFY20 against a PBT of RM19m in 3QFY20. As we expect further weakness in the property segment, and a slower demand pick-up from the infrastructure sector, we have lowered our ASP assumptions for FY21-22E to RM245-RM260/MT. There could be downside risk to our earnings forecasts if there are further delays to the award of major infrastructure projects.

Weaker Outlook for Property and Hotel Caused Negative Revaluation

The property investment and development segment recorded a higher LBT of RM271m in FY20, mainly due to: 1) losses from the sale of units and qualifying extension fees for its 3-Orchard By the Park and 2) its share of the fair value loss on the investment properties by SGREIT. PBT for the hotel operation declined by 46% in FY20, mainly due to the lower revenue contribution in 2Q20, as travel restrictions across the world led to a decline in occupancy rates. Given a reduction in global travel for both business and leisure due to the fear of COVID-19, we think it will take at least another 2-3 years before occupancy rates recover to pre COVID-19 levels.

Maintain SELL With a Lower RNAV-based TP at RM0.56

We keep our SELL call with a lower RNAV-based TP of RM0.56, as we lower the fair value of its subsidiaries and our EPS forecasts for FY21-22E by 15%-34% to factor in the current performance. We also introduce our 2023 forecasts. Although YTL did not announce any cash DPS for the year, it is distributing 1 treasury share for each existing share, which implies a value of around 2.3sen/share, lower than the 4sen DPS we were expecting. Any weakness in YTLP’s (YTLP MK, RM0.69, Hold) performance will also jeopardise YTL’s ability to pay dividend, as most of the cash flow is generated by YTLP.

Source: Affin Hwang Research - 1 Sept 2020