YTL Corp recovery expected in the second half
Core net profit impacted by Covid-19, Rawang plant shutdown
KUALA LUMPUR: YTL Corp Bhd’s nine-month financial year 2020 (9M20) results were below expectations as its core net profit fell 82% year-on-year (yoy) impacted by Covid-19, movement control order (MCO) and the shutdown of the Rawang cement plant, CGS-CIMB Equities Research said.
“We expect 4Q20 to be weaker quarter-on-quarter (qoq) and yoy (full impact of the MCO) but this is largely reflected in the share price, underpinned by a recovery in the second half of calendar year 2020 (2HCY20).
“We remain optimistic about renewed upside risks on the share price due to the likely revival of the Kl-singapore High Speed Rail (HSR) project news flow in 2HCY20. Add retained with a higher target price of RM1,” it said yesterday. CGS-CIMB Research said that overall 9M20 results did not portray the full impact of Covid-19 and the MCO that began on March 18.
What was not expected in the 3Q20 results was the almost full quarter’s impact of the shutdown of the Rawang cement plant (due to refurbishment).
The 9M20 results were therefore below expectations at 36%-46% of the research house and consensus full-year estimates, dragged by the 26.3% yoy rise in operating cost due to the consolidation of Malayan Cement.
“9M20’s EBITDA margin of 18.3% was lower than our full-year forecast of 21.6%, dragged by losses in the hotel and management services segment in 3Q20.
“9M20 core net profit fell 82% yoy to Rm62.5mil while 3Q20’s core net profit plunged 93% yoy,” it said.
CGS-CIMB Research said that segmental performance in 3Q20 was more representative of what’s to come in 4Q20 with the biggest disruption from Covid-19 and MCO affecting cement and hotels (54%101% yoy decline in pre-tax profit).
Cement was affected by weak demand despite flattish average selling prices qoq and higher cost despite the Rawang plant shutdown, while hotels’ pre-tax losses of Rm0.7mil was due to subdued average utilisation rates of 30% and potentially lower utilisation rates and wider losses in 4Q20.
“Strong billings for construction in 3Q20 have yet to reflect the impact of the stop work order and almost zero revenue in 4Q20. The continued weakness in the utilities division was largely expected.
“The 31% slash in FY20 EPS is on account of the potentially weak 4Q20 period (qoq and yoy). This captures the prevailing operating conditions in 3Q20, as we impute weaker EBITDA margin, and higher losses for hotels and weaker earnings for cement.
“We also assume operating conditions for domestic operations and a slow recovery post-mco, resulting in the 16%-53% cuts in FY20-22 EPS. 9M20 weakness presents a buying opportunity; add with higher target price (TP).
“YTL Corp remains our top pick for a potential recovery in the progress of the HSR project, ahead of the review deadline at end-2020. Earnings disruption from Covid-19 and MCO is largely priced in, in our view.
“We expect the share price upside to be supported by news flow on the HSR, and the government’s recovery plans for infrastructure.
“We raise Rnav-based TP to RM1 (+3 sen) as we update for the market cap of listed units (30% RNAV discount). Downside risk may be due to political uncertainties, ” the research house said.