YTL Corp: A Strong Start

MIDF Research, November 24, 2023

KEY INVESTMENT HIGHLIGHTS
• 1QFY24 result outperformed expectations
• Strong +495%yoy PBT growth driven by the utilities and cement divisions
• FY24F/25F net profit revised up +49%/+48%

A strong start. YTL Corp (YTL) reported a net profit of RM521.7m for its 4QFY23 (+1325%yoy), which well outperformed expectations accounting for 42.8%/40.8% of our/consensus full year expectations. The outperformance came from the utilities division, predominantly driven by Seraya, as well as stronger than expected performance of YTL’s cement unit.

Key takeaways. Group 1QFY24 PBT grew +495%yoy mainly driven by the utilities and cement divisions. The former saw PBT grow +300%yoy to RM930.8m as Seraya’s margins expanded from favourable retail contract renewals riding on a recovery in rates and cheap long-term gas contracts, though this was partly offset by losses at Wessex Water given non-cash interest accruals on index linked bonds. YTL’s cement division also performed strongly registering PBT growth of +327%yoy driven by higher volume (+18%yoy), higher selling price (+30%yoy) for both domestic cement and ready mixed concrete and lower coal price which moderated the impact of higher energy costs. Meanwhile, YTL hotels has returned to pre-pandemic earnings levels (1QFY24 PBT: +57.9%yoy) driven by market share gain, higher occupancy and higher room rates across all hotel assets.

Earnings estimates. Given the strong outperformance, we raise FY24F/25F net profit by +49.3%/+47.5% to reflect our revised earnings for YTL Power and higher ASP/volume/margin assumptions for YTL’s cement division.

Recommendation. We raise our SOP-derived TP to RM1.78 (from RM1.39 previously) to reflect upward revisions to our TPs for YTL Power (RM2.99 from RM2.45 previously) and MCement (RM4.91 from RM4.50 previously). We also remove our SOP discount as we believe YTL’s valuation is likely to re-rate in tandem with its potential entry into the FBM KLCI. Given a more attractive +25% potential return at our revised TP, we upgrade YTL to BUY from NEUTRAL previously.