YTL’s cement division negatively impacted by MCO

KUALA LUMPUR: YTL Corporation Bhd’s (YTL) cement division has been negatively impacted by the Movement Control Order (MCO), analysts observe, while the group’s hotel and utilities segments are expected to record weaker earnings ahead.

Affin Hwang Investment Bank Bhd (Affin Hwang Capital) recalled that YTL was not able to sustain the improvement in the second quarter of financial year 2020 (2QFY20), as profit before tax (PBT) for 3QFY20 unexpectedly contracted by 62 per cent quarter on quarter (qo-q), driven by lower revenue from both YTL Cement Bhd and Malayan Cement Bhd.

“Despite operations being only disrupted for two weeks due to the MCO during the 3QFY20, the segment recorded a 27 per cent q-o-q decline in revenue,” the research firm said

“The decline was due to several chunky orders, which YTL was not able to deliver during the MCO.”

“We believe that earnings for the segment are likely to remain challenging, as it will take YTL another two to three months before they are able to achieve similar operating efficiency to pre-MCO levels.”

Apart from the cement segment whose earnings are likely to remain depressed for the next two quarters due to the MCO, Affin Hwang Capital believed earnings at the hotel and utilities segments will face similar pressure.

According to the research firm, revenue contribution for YTL’s hotel operations is negatively impacted, as countries have closed their borders to tourists and most of its hotel operations was also suspended during the MCO.

“Despite the fall in revenue, YTL will still need to honour lease guarantee agreements to the real estate investment trusts (REITs).

“With tourists still unwilling to travel, losses should continue to drag YTL’s group profit.”

For YTL’s hotels division, the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) expected a much more significant impact of the Covid-19 pandemic and MCO in 4QFY20.

MIDF Research also projected that earnings at the utilities division is expected to remain weak in the near-term, but prospects for the cement division should gradually improve on the back of a consolidated market.

“On top of this, the construction division could see an improving outlook on the back of a potential high speed rail (HSR) project revival, progress on the existing Gemas-Johor Bahru double tracking project and progress on the Tanjung Jati (Indonesia) power plant project which could see YTL grabbing around US$1 billion (RM4.2 billion) in EPC works,” the research arm said.