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 YTL 4677 YTL CORPORATION BERHAD is soon becoming another 10x Bagger
dragon328

Introduction

YTL Corp is a prominent conglomerate listed on Bursa Malaysia with a current market capitalization of RM7.00 billion (based on 11.02 billion share base at current share price of RM0.605).  The company has businesses in utilities, construction, cement, property development, hotels, shopping malls, ERL etc. Its share price has been on a downtrend from a peak of RM1.70 in September 2016 to the current depressed level of RM0.50-0.60 in 2022.

YTL Corp has many good assets and I believe it is grossly undervalued at current share prices. Based on sum-of-parts valuation, this company may be worth RM4.55 to RM6.50 per share, a good 750% to 1,070% higher than its current share price.

The newly clinched digital bank licence would add a valuation of RM0.37 to RM0.50 per share to YTL’s sum-of-parts valuation to RM4.92 to RM7.00. The digital bank joint venture would add 40% - 50% to projected cashflows and hence cashflow valuation will go up to RM3.22 to RM4.96 per share.

Why its share price has dropped by 60%-70% since 2016?

YTL Corp earned a pretax profit of RM2,262 million in FY2016 with major contributions from utilities business (RM1,031 million or 45%), cement division (RM545 million or 24%) and property/REIT (RM433 million or 19%).

One of the key assets owned by YTL Corp is YTL Power, the utilities arm of the group that is listed on Bursa Malaysia. The share price of YTL Power has dropped by half since 2016 due to the expiry of the Power Purchase Agreement for its Malaysia power stations and hence fallout of a huge earnings base, reduced earnings contribution from Wessex Waters, UK due to lower water tariffs for the 5-year regulatory period of 2020-2025, much lower earnings contribution from PowerSeraya, Singapore since 2016 due to over-supply situation in the electricity market there, and continued losses from its wimax division since 2015. As YTL Power was the largest earnings contributor (70% revenue and over 50% earnings) to YTL Corp, the drop of YTL Power share price has had a direct impact on YTL Corp’s share price performance.

The other reason for the drop in YTL Corp’s share price in the past 2 years is the covid-19 pandemic. Due to various lockdown measures imposed by the government, construction activities had been disrupted. This had mainly affected the progress of construction work for its RM9.0 billion JB-Gemas double-track railway project and demand for cement.

Besides, the pandemic has caused shutdown of Malaysia borders for 2 years from March 2020 to April 2022, which had deterred foreign travelers to enter Malaysia. The pandemic has also caused local tourism activities to plunge due to fear of infection and various lockdown measures. As a result, the hotel division of YTL Corp had made losses for a few quarters during the past 2 years.

The pandemic has also caused much lower footfall to shopping malls owned by YTL Corp, resulting in lower rental income. The property market had been adversely affected too due to lower spending power and higher unemployment of Malaysians during the pandemic.

Why YTL Corp outlook is getting brighter?

I believe the outlook of YTL Corp is getting brighter and the group has emerged from the pandemic stronger. Most investors and analysts have under-estimated the potential of YTL’s core competency in construction and the massive values embedded in its assets. To understand why things are getting better for YTL Corp, I shall examine some of its key subsidiary companies to see how each is worth to the group.

(i) YTL Power

YTL Power is itself grossly undervalued with multiple re-rating factors coming in the next two years. First, its key asset PowerSeraya will see profit margin recovering especially from 2023 when the electricity over-supply situation is getting ease off gradually. Very soon PowerSeraya will be back to its glory days of earning annual EBITDA of SGD250-450 million like what it did in FY2007-2008.

Secondly, its 45%-owned joint venture company, Attarat Power will see its new oil shale-fired power plant in Jordan to achieve commercial operations in 2H 2022. The project would start contributing earnings and cash flows of about USD100 million p.a. as early as 2023.

Thirdly its subsidiary YTL Comms will be able to start rolling out 5G services to consumers this year after Malaysian government has appointed DNS to set up a single 5G broadband network. YTL Comms will not need to spend heavy upfront capex but shall get equal access to the 5G network. It will be able to compete on equal basis with other telcos like Celcom and Maxis as every telcos will pay the same network access fee. This 5G business may potentially start contributing hundreds of million ringgit of profits very soon.

Forthly, YTL Power just launched the first green data centre powered by solar energy at Kulai, Johor in mid April 2022 to tab into the vast potential of data centre business of MNCs in Singapore. Due to the vast disparity of electricity prices in Singapore and the affordable pricing of solar energy, it is highly likely for YTL Power to attract MNCs from Singapore to set up data centre in Kulai. This business may potentially be lucrative.

Lastly, Singapore government has issued Request for Proposals to solicit interests from potential developers to bring in up to 4,000MW of renewable energy into Singapore by 2035. This has attracted many international bidders to participate, as far as a joint venture company in Australia planning to bring in solar energy from Darwin via undersea cables to Singapore. YTL Power will stand a good chance to bag some of this power import to Singapore as setting up solar farm in Johor will be the cheapest solution for power import to Singapore as it is the closest, a far advantage over the Australian joint venture or pulling an undersea cable from Indonesia.

Above all these, YTL Power still has a prime asset in Wessex Water which may be worth 1.6x Regulatory Capital Value or over RM18 billion in equity value. Investors and local analysts are giving a very low value to Wessex as they do not appreciate or understand the beauty of a regulated asset and how much it is worth. One local analyst only gave a value of RM4.9 billion to Wessex, a big 75% discount to what may be worth over RM18 billion. If and when YTL Power decides to monetize the value of Wessex either through a listing on London stock exchange or sell a stake to a strategic partner, then investors and analysts will realize that the value of Wessex is few times higher than what they assume.

A more detailed write-up on YTL Power’s assets and how much they are worth is given in the article below:

https://klse.i3investor.com/web/blog/detail/dragon328/2022-04-22-story-h1621549755-YTL_Power_is_potentially_a_10x_Bagger

Based on the analysis done in the article above, YTL Power may see annual cash flows of RM2.26 billion to RM3.56 billion from FY2023 onwards. Using a valuation of 7% free cash flow yield, YTL Power may be worth RM3.85 to RM6.15 per share. Hence, YTL Corp’s 52.6% stakes in YTL Power will be worth RM1.50 to RM2.40 per share based on cash flow valuation.

Based on sum-of-parts valuation, YTL Power may be worth RM3.93 to RM7.55 per share in a bluesky case where YTL Power takes initiatives to unlock value of its various assets and its new projects take off well. This will give a value contribution to YTL Corp of RM1.54 to RM2.95 per share.

(ii) Malayan Cement

YTL Corp owns a 77% stake in Malayan Cement that is listed on Bursa stock exchange. Malayan Cement is now the largest cement producer in Malaysia with about 67%-70% market share. YTL Corp privatized YTL Cement in Dec 2011 by making a voluntary share swap offer at an offer price of RM4.50 per share. That valued YTL Cement at about RM3.2 billion or a PER of 10.67 times and 1.31x book value.

In May 2019, YTL Corp first through its subisidary YTL Cement made an offer to acquire a 51% stake in Lafarge Cement for RM1.6 billion (RM3.75 per share) cash from LafargeHolcim Ltd. Then YTL Corp made a mandatory take-over offer for the remaining 49% at the same valuation. Lafarge Cement then was making losses due to over-supply and weak cement prices while YTL Cement was making profits. The deal valued Lafarge Cement at RM3.19 billion or at 1.25x book value. YTL Cement also assumed debts of RM834.7 million in Lafarge Cement.

In May 2021, YTL Corp proposed to inject the domestic cement operations of YTL Cement into Malayan Cement for RM5.2 billion, to be satisfied by (i) RM2.0 billion cash, (ii) RM1.4 billion worth of MCement new shares valued at RM3.75/share, and (iii) RM1.8 billion worth of ICPS at RM3.75/share. That valued YTL Cement at a PE ratio of 14.6x FY2021F earnings and 2.9x book value. Through this injection, YTL Corp effectively relisted YTL Cement at a much higher valuation than the value it privatized it in 2011, netting in a cool RM2.0 billion cash from the exercise.

The deal was completed in 2H2021 and Malayan Cement had consolidated a full 3 months’ contribution of YTL Cement in its Q2FY2022 (Oct-Dec 2021). As a result, Q2 quarterly revenue jumped up by 134% to RM821 million and EBITDA increased by a larger 393% to RM173 million. Pretax profit for Q2 was RM79.3 million and Net Profit came in at RM54.9 million after a larger than usual tax rate of 31%. Quarterly revenue in Q2FY2022 was larger than the average quarterly revenue of RM697 million in FY2016 (which was contributed from YTL Cement only, excluding Lafarge Cement) but pretax profit in Q2FY2022 was lower than the average quarterly pretax profit of RM136 million back in FY2016 due to low cement prices realized in Q2FY2022 likely around RM200-210 per tonne.

The outlook for MCement should turn much brighter from Q3FY2022 (Jan-Mar 2022) following an increase of 30% in cement selling prices to about RM270/tonne in Dec 2021. Had operating costs remained unchanged, that would have added RM246 million (30% x revenue of RM821 million) to its EBITDA for Q3. However, one of the key operating costs, coal prices have increased by c.40% in Q3 from Q2. Assuming coal made up c.40% of total operating costs of RM648 million in Q2, operating costs for Q3 may have increased by RM103 million just from coal price increase alone (However the increase in operating costs may potentially be lower as MCement has hedged forward the prices of some of its coal requirements). Hence, EBITDA may have added RM246m – 103m = RM143 million to about RM316 million. Pretax profit may increase by RM143 million too to RM222 million assuming depreciation charges and interest costs for Q3 remain the same as Q2. Net profit for Q3 may rise to RM166 million assuming a normal tax rate of 25%, making earnings per share (EPS) of 12.8 sen.

Cement prices have since increased further to above RM320/tonne in April 2022 but if we assume cement prices average RM270/tonne for the entire year of CY2022, then MCement may achieve full year net profit of RM664 million or EPS of 51.2 sen. In a bluesky case, if cement prices maintain at a level of RM300 per tonne, then MCement would achieve EBITDA of RM480 million and pretax profit of RM387 million per quarter, resulting in a full year net profit of RM1,161 million or EPS of 89.3 sen.

Free cash flows will be stronger when we add back depreciation charges of RM273 million to top RM937 million per year or 72 sen per share in the conservative case and RM1,434 million per year or RM1.10 per share in the bluesky case. Capex forward will be minimal as there is still some 30% spare capacity in existing cement plants to cater for any increased demand.

YTL disposed off its Dama Cement plant in China in June 2021 for RM570 million, which was at 3.6x the NTA of the cement plant. Malayan Cement has an NTA of about RM5.6 billion now and I am confident that MCement will eventually be re-rated to at least 2.0x NTA or even 3.0x NTA.

Malayan Cement has total cement production capacity of over 10 million tonnes a year. Even if I value it at replacement cost of USD200 EV/tonne, MCement assets are worth RM12.0 billion.

(iii) Starhill Global REIT

YTL Corp owns a 37% stake in Starhill Global REIT which is listed in Singapore stock exchange. The current market capitalization of Starhill Global REIT is SGD 1.32 billion or RM4.1 billion with dividend yield of 5.5%.

Starhill Global REIT’s portfolio comprises mainly retail assets (shopping malls) which include 10 mid-to-high-end properties over 6 cities in Asia Pacific:

  • Wisma Atria, Singapore
  • Ngee Ann City, Singapore
  • The Starhill Shopping Gallery, KL
  • Lot 10 Property, KL
  • David Jones Building, Perth
  • Plaza Arcade, Perth
  • Myer Centre, Adelaide
  • Daikanyama, Japan
  • Ebisu Fort, Japan
  • China property, Chengdu

The REIT portfolio may expand if YTL chooses to inject unlisted assets into it or manages to acquire other retail assets at a bargain. With the covid-19 pandemic situation largely under control in Malaysia, Singapore and Australia, shoppers footfall into the above retail assets will start to rebound from Q1CY2022 to support continued high dividend payouts to YTL.

(iv) YTL Hospitality REIT

YTL Corp owns a 59% stake in YTL Hospitality REIT which is listed in Bursa stock exchange. Its current market capitalization is RM1.59 billion with dividend yields of 3.3% for FY2021-2022 due to the rental deferral program that lasts until 30 June 2022. Dividend yields are expected to jump back to above 8% p.a. from FY2023.

YTL Hospitality REIT portfolio comprises the following hotel assets:

  • JW Marriott Hotel, KL
  • The Ritz Carlton, KL – Suite Wing
  • The Ritz Carlton, KL – Hotel Wing
  • Cameron Highlands Resort
  • AC Hotel, Penang Bukit Jambu
  • AC Hotel, KL Titiwangsa
  • AC Hotel, Kuantan
  • Pangkor Laut Resort
  • Tanjong Jara Resort
  • The Majestic Hotel, KL
  • Hilton Niseko Village, Japan
  • Sydney Harbour Marriott
  • Brisbane Marriott
  • Melbourne Marriott

The 10 hotels / serviced apartment property in Malaysia and one hotel in Japan are covered under a Master Lease structure where these assets are leased back by YTL Hosp REIT to the respective vendors / lessees to operate the hotel and YTL Hosp REIT will earn recurring rental income. The 3 hotels in Australia are managed under Management Contract where YTL Hosp REIT will operate the hotels via appointed hotel managers.

With the covid-19 pandemic largely under control and Malaysia / Australia having re-opened border, visitor flows and hotel occupation will improve from April 2022. As these hotels are all located at strategic locations, I am confident YTL Hosp REIT should be able to capture the rebounds in tourism activities in next 2 years and will be able to declare back high dividends of 8.0-9.0 sen per share from FY2023. YTL Corp shall receive a minimum of RM80 million of annual dividend payouts from YTL Hosp REIT from FY2023 and RM120 million of annual dividends when the hotel business is back to the pre-pandemic level.

(v) SPYTL & Construction Arm

YTL group started as a builder in 1955. Its flagship construction company, SPYTL, is the first Class “A” turnkey contractor in Malaysia. It pioneered the use of slip forming techniques in early 1980s. It has a sterling track record in construction of sophisticated infrastructure projects and plants, for example SPYTL managed to build the first YTL’s gas-fired power plant in Malaysia in just 22 months, a world record time that beat Siemens’ normal timeline of 36 months; SPYTL built ERL, the high speed rail link between KL Sentral and KLIA for just US$9 million per km, the cheapest in the world.

Since 1990, SPYTL has completed an order book of around RM 30 billion and is carrying out about RM2.0 billion of construction work every year. With the covid-19 pandemic largely behind us in Malaysia and no more lockdown measures to restrict construction work, the outlook for SPYTL will be bright in next few years. This construction company will see plenty of opportunities to grow its construction orderbook in the following areas:

  • Data centres and solar power farm – YTL Power is developing a 500MW data centre and solar farm in Kulai, Johor. Construction work has started on the first 72MW data centre and YTL Power has just clinched a deal with a Chinese data centre operator for another 163MW data centres. The construction work for such data centres may require capex of about RM10 billion to be borned and paid by the data centre owners/operators. To SPYTL, this represents a potential RM10 billion worth of construction orderbook to be achieved in next 3-5 years as this first data centre park is fully developed. YTL Power will then develop another data centre park and award the construction work to SPYTL, and the potential is unquantifiable huge.
  • Warehouses and Logistic Centres – SPYTL is constructing warehouses, logistic centres and supporting infrastructure for Shopee, the largest online retailer in Malaysia and South East Asia. As online retail sales increase over time and as Shopee continues growing into new countries or regions, SPYTL will benefit from the growing infrastructure needs of Shopee.
  • Government Infrastructure Projects – as Malaysia comes out of covid-19 pandemic, the government will likely kick start various mega infrastructure projects to spur economic growth. MRT3 tender may come out soon and the KL-Singapore high speed rail project may be re-negotiated with Singapore in 2Q2022. SPYTL with its sterling track record will likely win some of the work packages (Note that SPYTL was awarded the southern portion of the KL-Singapore HSR before it was suspended).
  • Property projects – SPYTL carries out internal construction work for YTL Land property projects as well as for the Kwasa Damansara joint-venture property development with EPF. This JV project still has billions of ringgit of property projects to be built over the next few years.

The construction arm of YTL achieved revenue of about RM2.0 billion in FY2021 and revenue of RM646 million in H1FY2022. Pretax profit was RM101 million in 1HFY2021 and RM44 million in 1HFY2022. Going forward, it is reasonable to assume that YTL’s construction arm will be able to achieve pretax profits of about RM150 - 200 million every year.

(vi) The Landbank of YTL

YTL owns a large landbank of prime vacant land in Kuala Lumpur:

Landbank

Status

Size (acres)

Book value (RM psf)

Book Value (EM mn)

Market Value (RM psf)

Market Value (RM mn)

Sentul Raya

Freehold

165

163

1,172

2,000

14,375

Udapakat*

Freehold

4

2,086

318

5,430

828

Stonor

Freehold

1

1,000

33

5,430

177

SKPN

leasehold

58

70

177

150

379

TOTAL




1,700


15,759

  • A portion of this land was sold to MRT at RM5,430 psf

These parcels of land under YTL Land are worth RM15.759 billion at current market value. Even if I take a 30% discount to market value, I will still get a minimum value of RM11.0 billion for this KL landbank.

YTL disposed off a piece of land in Genting in August 2021 for RM 403 million which was over 3 times its book value. YTL also sold a portion of the Udapakat land to MRT at RM5,430 psf. YTL is prepared to monetize this KL landbank at the right price at the right time.

YTL Corp also owns about 1,550 acres of prime land in Niseko, Japan ready for development into high end resorts home and residential projects. Niseko is home to world class ski resorts with snow quality even better than that in Switzerland and has managed to attract increasing tourists from Asia Pacific (within a 7-hour flight) in recent years. The current market value of this land is about USD30 psf, valuing YTL’s Niseko land at close to USD2.0 billion or RM8.6 billion.

How much is YTL Corp worth?

(i) Sum-of-Parts Valuation

Besides the assets mentioned above, YTL Corp also owns other non-listed assets such as the Express Rail Link (ERL) between KL Sentral and KLIA, YTL e-Solutions and other hotels.

YTL Power, being an international utility company with top class assets in the UK, Indonesia and Singapore will make up the bulk of the value to YTL Corp. Based on my previous analysis on YTL Power, I reckon that YTL Power should be worth at least RM3.85 per share or RM31.6 billion whether based on a conservative sum-of-parts valuation or based on cash flow valuation. A bluesky case will value YTL Power at RM61.9 billion or RM7.55 per share.

Malayan Cement on the other hand should be valued at free cash flow yield of 10% or RM9.37 billion in the conservative case and RM14.34 billion in the bluesky case.

For Starhill Global REIT and YTL Hospitality REIT, I shall use the current market capitalization as the valuation basis. For Niseko landbank, I use a market value of USD30 psf in my valuation.

For the construction arm of YTL, I will value at 15x PER of its projected pre-tax profits of RM200 million.

As of 31 Dec 2021, YTL Corp’s balance sheet carried a total debt of RM43.7 billion with cash balance of RM13.5 billion, resulting in a nett debt position of RM30.1 billion. Most of these debts are non-resource and ring-fenced at the subsidiary level or at project level. This means that any default of a loan at a subsidiary level or at a project would not cause any cross defaults to YTL holding level, and these debts will not restrict the use of YTL’s cash reserves for future projects.

As analysed before, YTL Power had about RM20.5 billion of net debt at its balance sheet as of 31 Dec 2021. Malayan Cement had about RM3.3 billion of net debt while YTL Hosp REIT had net debt of RM1.95 billion as of 31 Dec 2021. Starhill Global REIT net debt is estimated at RM5.0 billion assuming a gearing ratio of 55%. Hence, YTL Corp had [RM30.1 – 20.5 – 3.3 – 1.95 – 5.0 bn] = RM0.65 billion of nett cash at the holding level. This is slightly better than the nett debt of RM945 million as estimated by CIMB analyst. I have no information on the net debt position of Niseko and ERL subsidiary companies so I assume zero.

We can summarise the various assets owned by YTL Corp in a conservative case as follow:

Listed Subsidiary

Methodology

Stake

Value (RMm)

YTL’s share (RM m)

Per YTL share (RM/share)

YTL Power

Target price

55.0%

31,185

17,152

1.56

YTL Land (privatized)

30% discount to market

90.0%

11,000

9,900

0.90

YTL e-Solutions (privatized)

Privatization value

100%

738

738

0.07

Malayan Cement

Target Price

77%

9,370

7,215

0.65





35,005

3.18

REITs






Starhill Global REIT

Market cap

37%

4,100

1,517

0.14

YTL Hosp REIT

Market cap

59%

1,590

938

0.08





2,455

0.22

Non-listed Assets






ERL

NPV

45%

874

393

0.03

Niseko land bank

USD30 psf

100%

8,600

8,600

0.78

Construction earnings

15x PER

100%

3,000

3,000

0.27

Net cash

At holding co


650

650

0.06





12,643

1.15

Total RNAV




50,103

4.55

If we take the bluesky case valuation of YTL Power and Malayan Cement, then it will add additional value of RM16.5bn + RM5.0 billion = RM21.5 billion to YTL Corp to derive a bluesky case valuation of RM71.6 billion or RM6.50 per share.

In summary, YTL Corp should be worth at least RM4.55 to a bluesky case of RM6.50 per share, which is 750% to 1,070% higher than its current share price of RM0.605.

(ii) Cashflow Valuation

YTL Corp generated operating cash flows before capex of RM2.0 billion for FY2021 and RM957 million for 6 months ended 31 Dec 2021. Its operating cashflows are strong due to strong dividend payouts and strong cashflow generated from each subsidiary. If we look at potential dividend payments to be received from its listed subsidiaries, YTL Corp will have annual operating cash flows as follow:


Conservative Case Dividend (sen)

Dividend payment to YTL Corp (RM mn)

Bluesky Case Dividend (sen)

Dividend payment to YTL Corp (RM mn)

YTL Power

15.0

668

30.0

1,336

MCement

70.0

700

100.0

1,000

Starhill REIT

5% dividend yield

76

6% dividend yield

91

YTL Hosp REIT

8.0

80

10.0

120

Construction


150


200

TOTAL


1,674


2,747

Total per share (sen)


15.2


24.9

The above cashflows are just from dividend payments received from the 4 listed entities and construction arm. For simplicity, I assume that operating cashflows from other non-listed entities like ERL, YTL Land or monetization of Niseko land will be used to pare down borrowings or build up warchest for future acquisition.

Using a 7% free cashflow yield, YTL Corp should be valued at RM0.152 – RM0.249 / 7% = RM2.17 to RM3.56 per share. YTL Corp was paying dividend of 12 sen for FY2014 and 10 sen for FY2015 and share price was steady at around RM1.70 then. YTL Group has been very generous in dividend payouts and has paid out a total of RM28 billion of dividends in past 10-15 years.  I am confident that YTL Corp will be able to declare dividends of 10 sen or even 20 sen as soon as from FY2023 onwards, and its share price will re-rate back to RM1.50 to RM3.00 (based on 6.7% dividend yield) purely from the dividend angle.

Future Plans to provide further upsides

(i) Digital Bank Licence

Bank Negara awarded one of the 5 new digital bank licenses to YTL – Sea Group consortium on 29 April 2022. YTL’s partner, Sea Group of Singapore is the parent company of online shopping giant Shopee. The paid-up capital required for setting the digital bank is RM100 million in the initial phase, ramping up to RM300 million eventually.

To estimate the potential earnings contribution from this joint venture, I first examine the existing pie of earnings of all the banks in Malaysia:

No

Bank

2021 Annual Net Profit (RM m)

1

Maybank

8,096

2

CIMB Bank

4,648

3

Public Bank

5,657

4

Hong Leong Bank

3,000

5

RHB Bank

2,618

6

Ambank

1,100

7

Alliance Bank

560

8

Affin Bank

527

9

BIMB

534

10

Aeon Credit

355


Total

27,095

If we assume that the 5 new digital banks will be able to get a share of 15% to 20% of the bank earnings above, then each digital bank would be able to generate net profit of RM813 million to RM1,084 million every year. Mid-sized banks like Ambank or Alliance Bank are trading at about 10x PER, so a digital bank may be worth RM8.1 billion to RM10.8 billion and value contribution to YTL would be RM4.1 billion to RM5.4 billion assuming 50:50 joint venture between YTL and Sea Group.

If the digital banks are innovative enough to explore the untapped or under-served groups of borrowers as Bank Negara wanted them to, or if we include other consumer lending by various retailers like Courts, Havey Norman and Senheng, or if the digital bank can extend lending to consumers of online shopping platforms in Malaysia and neighbouring countries, then the potential pie will be much larger which I am not able to put a sensible estimate. Sky is the limit.

(ii) Monetisation of Niseko Landbank

Currently the Niseko landbank is valued at book at USD0.88 psf (original cost of acquisition of USD60 million). Should YTL decide to monetize it later at current market price of USD30 psf, it would generate cash proceeds of USD2,000 million or RM0.78 per share. With Niseko becoming the top ski destination of choice for many Asians, YTL’s Niseko landbank may potentially be valued much higher than USD30 psf. YTL bought this land at a discount of say 55% and market value of the land was at USD2.00 psf at that time, then this land value has gone up by 15 times since YTL bought it. Assuming that this land value were to go up 5 times again in next 10-20 years, then it would be worth a whopping USD10 billion to YTL!!

(iii) High Speed Rail Projects

YTL was awarded with the southern portion of the High Speed Rail project between KL and Singapore but it was cancelled by the Pakatan Harapan government in 2020. Now the new government in place is considering reinstating this HSR project but may terminate it at Johor Bahru instead of Singapore. As General Election No. 15 will likely be held in 2H 2022 or latest by July 2023, the government may consider rolling out high impact infrastructure projects to spur up the economy. There was news reporting that a government official even proposed for HSR between KL and Thailand, which would be much longer than the KL-Singapore HSR. Should any of these mega infrastructure projects be rolled out later this year, YTL would be keen to participate and would be one of the frontrunners to bag a portion of them as it was one of the original winning bidder and has the relevant experience and financial strength to take up such mega projects. In any event, the demand for cement will go up when any of these mega infrastructure projects kicks off, which will definitely benefit Malayan Cement.

(iv) Future Acquisition

YTL is well known for buying good assets at distressed valuation, eg. scooping up Starhill and Lot10 from Taiping Co during 1998 financial crisis, buying 100% Wessex Waters from the bankrupt Enron group in 2002 and buying the Niseko landbank at a big discount.

Opportunities may be coming very soon as the US Federation is on aggressive path of raising interest rates in next 12-18 months. Coupled with high inflation caused by the Russian-Ukraine war and economic sanctions on Russia by the US and the West, world economy is all set to slow down and certain countries / regions hit by rising interest rates and high inflation may go into recession soon.

US yield curves have just inverted in April 2022 (short term Treasury 2-year bond yields climb higher than the long dated 10-year bond yields). History in past decades shows that once the yield curves invert, US economy will go into recession within the next 2 years. I think this round there will be no exception. Aggressive interest rate hikes by the Fed will increase borrowing costs and costs of doing business substantially in coming months, which will dampen the property market and business expansion activities. High fuel prices and escalated food prices will reduce household disposable income substantially, dampening consumer spending. Highly indebted companies with weak cashflows will be the first ones to go bankrupt and assets at distressed sales will be available in next 1-3 years.

YTL Corp will be in a strong position to look out for cheap asset sales. It is in nett cash position of estimated RM650 million at the holding company level with a lot more at its subsidiaries (ERL, YTL Land, Niseko etc.). It is estimated that the total unencumbered cash reserve within the YTL Group may be as high as USD4.0 billion or RM17 billion (with about RM10.3 billion sitting in YTL Power alone). Assuming a debt : equity ratio of 80 : 20, such unencumbered cash reserve would enable YTL to have total M&A capacity of USD20 billion.  I believe that under the shrewd leadership of the management, YTL will be able to seal some lucrative deals in next few years.

(v) Appreciating Long Term Assets

YTL Group owns some assets that will appreciate in time, for example the regulated assets of Wessex Waters, the KL prime land under YTL Land and the Niseko landbank. In my earlier calculations, Wessex Waters may be worth RM45 billion in equity value 20 years later from the current value of RM18.7 billion, Niseko landbank may be worth USD10 billion 10-20 years later and YTL Land may be worth RM16.5 billion some years later. These 3 assets alone will add another RM65.7 billion valuation to YTL Corp, bringing the bluesky valuation to RM137 billion. If YTL buys more good assets at bargain prices along the way, a valuation of RM200 billion is not impossible eventually.


https://klse.i3investor.com/web/blog/detail/dragon328/2022-05-05-story-h1622437940-YTL_Corp_is_soon_becoming_another_10x_Bagger

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