• YTL managed to deliver a stronger earnings qoq to RM17m, which came in above our expectations but below consensus, supported by higher contribution from the cement and utilities segment
• We believe that the improvement is sustainable, given that the growth in utilities segment was ony partly due to write back of impairments of receivables
• We raise our EPS for FY21-23E by 2.2-207.5% to factor in the latest results, and lift our TP to RM0.67. Maintain HOLD

Cement Operations Continue to Improve

The 44% qoq increase in YTL’s cement PBT was a positive surprise to us, as we had previously assumed a slower demand for 4QCY20, due to the reimplementation of movement control order in most states since early November 2020. Interestingly, Malayan Cement’s (77% owned subsidiary) revenue was down by 4.7% qoq, but YTL Cement was up by 16.2% qoq. Overall PBT margin for the segment also expanded to 11.4% from 8.6%, which we believe was due to the cost rationalisation program implemented since the beginning of FY21. However, we believe that the overall growth will be capped by the absence of mega infrastructure projects.

Not All Is Good

While there was significant improvement in earnings for both the cement and utilities segment qoq,, some of the gains were offsets by the weak performance from the hospitality-related business (property and hospitality segment). This didn’t come as a surprise to us, given that the interstate travel ban and the continued closure of borders to foreign tourist has weighed on demand. We are expecting demand to improve gradually in 2021 supported by local tourism, but not expecting a full recovery until end of 2022, given that we are only expecting tourist arrival to start meaningfully pick up after 2021. LBT for the property development and hotel segment has widen in 2Q FY21.

Maintain HOLD But With a Higher TP of RM0.67

We are raising our EPS for FY21-23E by 2.2-207.5% to factor in the stronger performance for the cement segment. We note that the large increase for FY21E is off a low base. We are also boosting our RNAV-based 12-month TP to RM0.67 from RM0.62, as we raise our valuation for YTL Cement. Despite the higher TP, we are maintaining our HOLD call, as we believe that the upside potential is likely to be capped, given that the market outlook remains challenging for the hospitality-related operations.

Source: Affin Hwang Research - 26 Feb 2021