YTL lacks immediate catalyst, clarity for future plans — Analysts

KUCHING: Despite Malaysian conglomerate YTL Corporation Bhd (YTL)’s base earnings being well-supported by exposure in defensive sectors an high attractive high divdend yield, analysts note that the lack of immedicate clear catalyst at the moment caps the group’s potential upside.

According to the research arm of MIDF Amanah Investment Bank Bhd (MIDF Research) in its initiation coverage, YTL is one of the biggest companies listed on Bursa Malaysia.

“The company has grown from a small local construction company to become a multinational player with 70 per cent of its revenue derived outside of Malaysia,” MIDF Research said.

The research arm noted that YTL’s diverse operations range from construction, information technology, hotel operations, cement, management services, property investment and utilities.

MIDF Research believed that YTL’s base earnings are largely stable owing to the group’s exposure to a defensive sector via its utilities division.

The research arm said that the utilities division contributes about 74 per cent and 50 per cent to YTL’s revenue and profit before tax (PBT) respectively in financial year 2014 (FY14).

Nonetheless, it noted that contributions have been watered down over the years, credited to better performance from YTL’s other ‘growth’ divisions, namely cement and property division which are more cyclical in nature.

Taking cue from MIDF Research’s forecasted dividend, YTL offered one of the highest dividend yields among the FBMKLCI constituent.

“We view this high dividend return as an attractive element for investors to stay invested in YTL,” it said.

That said, MIDF Research noted that the group is lacking an immediate catalyst as well as clarity for future plans.

It said that YTL’s share performance has been lacklustre after the first half of 2012 (1H12)surge to a high of RM2.12 in June 2012.

“We believe the appreciation in share price then was mainly driven by the privatisation of YTL Cement which was undertaken via a share swap exercise.

“Since then, the price has retraced and moved sideways,” the research arm added.

MIDF Research also observed that YTL’s share price has been trading within the range of RM1.55 to RM1.70 which it believed to be due to absence of an immediate catalyst and clarity on the group’s future plans, the presence of which would catapult its price.

Valuation wise, MIDF Research noted that the share price is currently trading close to its five-year rolling average price-earnings (PE) range which the research arm believed is fair given the lack of immediate catalyst for this stock.

“On this note, we are of the view that its potential share price gain is limited at the moment,” it said.