YTL Corp: Yet another beat

MIDF Research, May 26, 2023

YTL Corporation Berhad
Target Price: RM1.05

• Second consecutive quarter of earnings outperformance
• Utilities division core driver of earnings growth, benefitting from tighter Singapore electricity market
• Cement division earnings more than doubled on higher ASP and demand
• FY23F/24F earnings revised up by +191%/+134%
• Reaffirm BUY at higher TP of RM1.05

Smashes estimates. YTL Corp’s (YTL) comeback is getting stronger with a 2nd consecutive quarter of outperformance. The group reported 3QFY23 net profit of RM414m, bringing 9MFY23 earnings to RM548m. This accounted for 220%/248% of our/consensus’ full year estimates. Topline grew +19%yoy driven by growth across most business segments. Coupled with strong core margin uplift, bottomline turned around from a core net loss of -RM123m in 3QFY22 to a net profit of RM414m in 3QFY23.

Utilities division earnings (+391%yoy) was the core driver of the 3QFY23 growth as Seraya is benefitting from higher prices in the Singapore electricity market. Given a tighter market from minimal new capacity and sustained strong demand, Singapore’s reserve margins are expected to gap down to a range of 29%-34% in CY23 from 46%-53% in CY22, based on the EMA’s projection. This level of reserve margin is expected to sustain until CY25, at least, suggesting Seraya’s strong earnings could be sustained in the near to mid-term. Seraya was also boosted by contribution from Tuaspring from June 2022, which effectively increased its capacity by an estimated 16%. Wessex Water remained in the red in 3QFY23 given inflationary cost pressure, but an average 9% tariff hike from 1st April 2023 is expected to lift it back into the black. 

Cement division another key driver. The cement division registered a +19%yoy topline growth and a +130%yoy PBT growth driven by higher demand and higher ASPs - PBT margins almost doubled to 9.7% in 3QFY23. We reckon lower coal prices (which has more than halved from a peak of USD464/MT back in 1QFY23) also contributed to the improved margins. Coal prices have reduced further since Mar23’ to the latest USD144/MT, which bodes well for cement margins going forward. Other than the cement division, YTL’s hotel operations continued to stage a strong recovery riding on easing pandemic restrictions - earnings have now exceeded pre-pandemic levels.

Earnings estimates. Given the strong outperformance, we raise FY23F/24F net profit by +191%/+134% to reflect our upward revision of YTL Power earnings as well as higher cement ASP and margins. 

BUY reaffirmed. We raise our SOP-derived TP to RM1.05 (from RM0.83) to reflect upwards revisions to our TPs for YTL Power (RM1.54 from RM1.12 previously) and Malayan Cement (RM3.74 from RM2.61 previously). YTL’s latest set of results underpin our thesis of a strong earnings recovery from FY23 given: (1) Improved earnings at the utilities division driven primarily by Power Seraya, (2) Gradually improving cement earnings as cost pressures ease amid improving demand and ASPs, (3) The hotel division as a reopening play riding on reopening of international borders and easing travel restrictions. Dividend yields are attractive at 4.9%-5.6% while valuations are undemanding at 10x FY24F PER.

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