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YTL Cement Bhd: Concrete Results

   
Malaysian Business, April 16th-30th 2002
Stories by Joanna Sze

YTL Cement continues to post strong results on the back of increasing cement usage.

YTL Cement Bhd is already reaping the rewards of the improved demand for cement.

After a top-performing year in 2001 – a profit before tax of RM378.5 million for FY ended June 2001, more than triple the previous FY; a one-for-one bonus; and a net dividend of 7.2 sen per share – YTL Cement's shares, not surprisingly, have entered a phase of consolidation.

However, major shareholder YTL Corp has been buying up shares amounting to 1.1 per cent ofYTL Cement's share capital in the open market since December, a move analysts say signals investor confidence in the stock or the holding company's perception that the stock is undervalued.

Despite a slow season, YTL Cement still turned in fairly strong results for the first six months to December 2001. The company recorded a nine per cent improvement in pre-tax profit to RM35.46 million, from its previous corresponding period, although net profit remained quite the same due to tax.

The company's revenue is driven by a strong demand for its slag cement, which is a choice cement for port refurbishment. YTL Cement is the main producer of the product, part slag and part cement, which boasts healthy margins of about 30 per cent. This, analysts say, is because YTL Cement gets its slag, a by-product of power plants and steel mills, at a very cheap price from its power plants.

'With its high profit margins, we expect the slag cement plants at Pasir Gudang and Port Klang to continue being the main engines of earnings growth in the next few years,' says an analyst.

The company's 50 per cent associate, Pahang Cement, recorded improved profits for FY01 with stronger cement prices at the end of a price war. 'We think the present demand for cement is sustainable with stable price rebates of three to four per cent,' adds the analyst.

YTL Cement is also believed to be the forerunner to acquire Cement Industries of Malaysia (CIMA) from United Engineers (M) under the latter's restructuring scheme. Valuations for CIMA range from RM4.30 to RM6.05 per share but no formal offer has been made yet. Should this deal go through, it would catapult YTL Cement to the top tier of the industry. But whether CIMA will add to shareholder value boils down to pricing.

'We remain positive on YTL Cement as ongoing construction pump-priming will translate to higher usage for cement and ready-mixed products,' says online financial advisory portal Surf88. 'Meanwhile, the in-house property projects from YTL Corp should underpin a healthy level of demand.'

So far, the group's Express Rail Link (ERL) project has been a big boost to YTL Cement's bottomline. 'It is also encouraging that YTL Cement has been able to improve margins amidst rising sales,' says Surf88.

The company's shares closed at RM3.04 on April 8, 2002. It trades at a PE of less than 5x FY02 earnings (lower than the sector PE average of 10.5x) and is backed by net tangible assets of RM2.13 per share. Fair value is estimated at RM3.60.




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