INVESTMENT HIGHLIGHT

• YTL’s 9MFY17 earnings met our but missed consensus

• Cement was a big drag but offset by better hotels/management services performance

• FY18F earnings raised 6% to reflect Paka PPA extension

• Maintain NEUTRAL but raise TP to RM1.54/share after rolling over to FY18F

Results met ours but missed consensus. YTL reported core net profit of RM241m for its 3QFY17, bringing 9MFY17 core earnings to RM538m. This is within our estimate but below consensus accounting for 80% and 64% of FY17F respectively. 3QFY17 earnings improved 5%yoy mainly driven by the hotels and management services units.

Utilities unit improved. YTL’s utilities division (accounts for 53% of group pretax) is still dragged by its Singapore multi-utilities division with little improvement from Wessex Water given stagnant GBP levels in the past 6 months. Power Seraya benefits from vesting volumes sold to Singapore Power Services as this is on a cost plus basis, hence guarantees profit margins which is valuable in the current situation. However, vestimg volumes fluctuates and we suspect this was lower in 3QFY17 (vesting volumes account for at least 25% of power demand in the country).

Non-utilities business. The management services division reported better earnings mainly due to the absence of provisions recorded last year, higher distribution income from investment in a fund by a foreign subsidiary and unrealised forex gains by an offshore subsidiary. The hotels division also saw improved earnings given better performance of Niseko Village K.K. and YTL Majestic Hotels.

Cement is a big drag. The cement division (which accounts for 16% of group pretax) is a drag, registering a massive 81%yoy earnings contraction – in line with earnings trends of listed cement players e.g. Lafarge. The industry is likely to remain challenging in the near-term, facing oversupply, low demand and a competitive pricing environment.

Earnings raised. Having said that, we raise our FY18F earnings by 6% to reflect the recently secured Paka plant PPA extension for YTL Power. The PPA extension is for a period of 3 years 10 months commencing from Sep17.

Recommendation. Maintain NEUTRAL but raise our TP to RM1.54/share (from RM1.30/share) flowing the earnings revision and after rolling over our valuations to FY18F. FY18F 7.4% dividend yield is attractive.

Source: MIDF Research - 26 May 2017