YTL Corp’s share price is at attractive levels for the High Speed Rail (HSR) play as the 32% fall in share price year-to-date presents an attractive re-entry point to position for a potential favourable outcome for the project at end-2020, CGS-CIMB Research said.
KUALA LUMPUR: YTL Corp’s share price is at attractive levels for the High Speed Rail (HSR) play as the 32% fall in share price year-to-date presents an attractive re-entry point to position for a potential favourable outcome for the project at end-2020, CGS-CIMB Research said.
It said on Tuesday it expected YTL to emerge as a contender as it was among the earlier beneficiaries of the cancelled HSR award in 2018.
“Reiterate Add with a lower 80 sen TP based on a wider 40% RNAV discount (30% previously) in view of FY20’s underperformance and lack of clarity and newsflow on the HSR project.
“Upside risk: revival of HSR newsflow. Downside risk: delays in mega rail jobs due to political factors, ” it said.
However, CGS-CIMB Research cut YTL Corp’s FY21-22F EPS by 24%-37% to account for 1) FY20 losses for property/REIT and cement divisions, 2) weaker earnings for hotel segment due to the prolonged impact of Covid-19,3) weaker utilities earnings.
To recap, the research house said a positive surprise from YTL Corp’s FY20 results was the strong growth in construction revenue and pretax profit, which were underpinned by accelerated billings from the Gemas-Johor Bahru rail double tracking job (its largest rail contract) as project milestone reached almost 50%.
This was despite the stop work directive at the peak of the Movement Control Order (MCO) in 4Q20. This, along with the effect of the consolidation of Malayan Cement, lifted FY20 total revenue by 6.2% yoy.
FY20 core net profit of RM36.3m (excluding RM226.2m fair value changes, impairment loss and inventory write down) was below expectations (down 90% yoy) against CSG-CIMB Research and consensus full-year core net profit forecasts of RM79m-RM94m.
“The key deviations from our estimate were losses for the cement division (despite the shutting down of the Rawang plant), significant losses for property/REIT, the impact of Covid-19 on the group’s hotels division and weaker utilities earnings. It declared a 1-for-30 share dividend to conserve cash (3.3% yield).
“We expect the worst to have passed in terms of the disruption Covid-19 and the MCO wreaked on its domestic operations, although regional travel restrictions will continue to weigh on the performance of its hospitality assets, ” it said.
CGS-CIMB Research forecast: 1) lower losses for the cement division post MCO, and 2) higher pretax profit for construction as billings for the Gemas JB rail project resume.
In 4Q20 (the peak of the MCO period), the cement division’s revenue fell 30% yoy, resulting in pretax losses. The property/REIT segment’s pretax losses expanded 91% yoy on the back of a 93% yoy drop in revenue. The hotels and utilities divisions recorded 25-75% yoy fall in revenue and 65-87% yoy plunge in pretax profit.