INVESTMENT HIGHLIGHT

• 4Q18 core earnings slightly ahead, dividends maintained

• Property inventory write-down impacted headline numbers

• Construction and cement slated to improve from FY19F

• Re-affirm BUY at unchanged SOP-based TP of RM1.55

4Q18 core earnings ahead of estimates. YTL reported core net profit of RM226m for its 4QFY18, bringing FY18 core earnings to RM598m. This is ahead of estimates accounting for 115% and 111% of our and consensus FY18F respectively mainly due to stronger than expected utilities earnings. A final dividend of 5sen/share was declared (ahead of expectations), representing a 88% payout (vs. our 60% payout assumption.

Property write-down. There was a large inventory write-down amounting to RM120m (against BV of RM1b) for the property segment in 4QFY18, relating to YTL’s property project in Singapore (part of 3 Orchard by the Park project) – write-down was triggered by Singapore’s property cooling measures. The project involves 77 units and is slated to commence sales soon. Despite the write-down, YTL is confident of selling the units around SGD3500-3700psf – if this materialises, the amount is likely to be written back.

Major expansion to orderbook. The addition of the Gemas JB project (we estimate YTL’s share of the contract at RM8b) on top of construction of the group’s Tg Jati power plant in Indonesia (estimated construction value of RM4b) will provide a massive expansion to the group’s orderbook from the current RM400m to some RM12b. Gemas-JB is understood to be already underway (20% progress) while Tg Jati construction is expected to commence early-CY19F. While there was some contribution by Gemas-JB in 4QFY18, meaningful contribution is expected from 2QFY19.

Cement on track for improvement. Cement revenue (-8%yoy) and earnings (-70%yoy) shrunk in 2Q18 due to lower demand, increase in sales & distribution cost and competitive pricing. However, future improvement should be driven by sizeable internal projects, i.e. GemasJB double tracking and Tg Jati construction (clinker supply).

BUY reaffirmed. Our BUY on YTL is maintained at unchanged TP of RM1.55. Key catalysts are: (1) Gemas-JB double tracking expansion progress, (2) Commencement of Tanjung Jati power plant construction; estimated RM4b construction value, (3) Construction of two new luxury hotels – Marriot and Edition Sentral - under YTL Land, (4) Improvement in YTL Cement’s earnings driven by the construction divison’s orderbook expansion, (5) Consolidation in Singapore power generation sector, (6) Gradual expiry of LNG supply contracts for Singapore power, and (7) Accelerated breakeven of mobile broadband business from any potential partnership or divestment. Key risk to our call is weaker than expected underlying earnings for YTL’s cement unit and a delay in construction job awards.

Source: MIDF Research - 30 Aug 2018