YTL Corporation - Dividends are the new normal

Date: 
2014-09-10
Firm: 
CIMB
Stock: 
YTL
Price Target: 
2.29
Price Call: 
BUY
Last Price: 
2.49
Upside/Downside: 
-0.20 (8.03%)
Target RM2.29 (Stock Rating: ADD)

We are raising our FY15-17 DPS forecasts from 4 sen to 10 sen following our assessment of YTL's dividend income stream from its operating units. The sudden pick up in dividends comes from the strong operating performance of YTL Cement and the winding down of its capex cycle, making it the biggest dividend contributor for the group, surpassing that of YTL Power. YTL shares are now offering a yield of 6% which should provide strong valuation support while key catalysts such as the high-speed rail bid and increased cement capacity are coming into view. Our FY15-17 EPS forecasts are trimmed from higher net interest expense from the larger dividend payout. Our target price (based on 20% discount to RNAV) remains unchanged. Add maintained.

What Happened 
YTL declared a surprise 9.5 sen third interim dividend in its 4QFY14 results, bringing total FY14 DPS to 12 sen, an 80% or RM1.3bn payout. The big question among investors was whether this payout is sustainable. Following conversations with management and analysis of its dividend income stream from its businesses, we believe YTL can pay at least 10 sen DPS or RM1.1bn p.a. 

What We Think 
Since YTL is a holding company, the only way it can pay dividends is to upstream the dividends received from its various units to shareholders. The key driver of this is YTL Cement, given its strong operating performance and the fact that it has been taken private, it is the biggest contributor to the payout, accounting for at least 40% of YTL's dividend income stream. At the same time YTL Power's significance is not diminishing, it resumed its dividend paying ability with a 55% payout in FY14 compared to 7% in FY13. Its 4G mobile broadband network is turning EBITDA positive while the possibility of an extension of its Malaysian PPAs are high, now that construction of several key plants, such as Malakoff's 1,000MW Tanjung Bin expansion, has been delayed. 

What You Should Do 
YTL's dividend story has been talked about previously but it is now being put into practice to further support it as one of our top picks. The interest of management and minority shareholders are now fully aligned. With its 50% stake in YTL, Yeoh Tiong Lay & Sons Sdn Bhd is set to receive at least RM540m a year in dividends. For more than two decades, management has been holding back the payout of dividends because its various units needed cash to build its businesses or keep it for M&As. With RM14bn of consolidated cash now on the balance sheet, management and minorities can afford to reap the rewards of paying out a large portion of recurring profits indefinitely.


Discussions
2 people like this. Showing 1 of 1 comments

Tew Tek

live in this moment, real emptines created amazing fortune.

2014-09-24 23:11

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