YTL to benefit from possible revival of the HSR and MRT 3 projectsWeaker earnings and further uncertainties and delays in the rollout of mega rail projects are key downside risks for the companyby SHAFIQQUL ALIFFYTL Corp Bhd expected to benefit from the potential revival of Malaysia-Singapore High Speed Rail (HSR) and Mass Rapid Transit (MRT) 3 projects, for which YTL could emerge as potential contenders, said CGS-CIMB Securities Sdn Bhd.Its analyst Sharizan Rosely, in a research note stated that the research outfit added a rating as valuation is attractive.“Our target price (TP) falls slightly to RM0.65 as we update for the market cap of listed entities and TP of YTL Power International Bhd. HSR approval is a key potential re-rating catalyst. Key downside risks: Weaker earnings and further uncertainties and delays in the rollout of mega rail projects,” he said.He added YTL’s first half of financial year 2022 (1H22) results broadly in line with core net profit made up 47% of the analyst’s full-year forecast but constituted 34% of the consensus full-year estimate.The performance was broadly in line with CGS-CIMB’s expectations of construction billings to pick up, driven by the Gemas-Johor Bahru (JB) double tracking project, improved domestic cement margin following the 30% price hike in December 2021, lower losses for hotels on reopening of borders, and stronger earnings for utilities division. The second quarter 2022 revenue recovered strongly (+49% year-on-year [YoY], +35% quarter-on-quarter [QoQ]), driven by domestic reopening of sectors.The firm’s cement and construction divisions saw revenues fall 19%-36% YoY in 1H22Source: “However, core net profit fell sharply YoY and QoQ, mainly due to the absence of contribution from the China cement division post the disposal and the absence of land sale proceeds. 1H22 revenue grew 36% YoY, in line with better operating conditions across all divisions.“Despite the lower Ebitda margin of 15.7% in 1H22 versus 20.4% in 1H21, YTL’s RM67 million core net profit (mainly excluding gain on disposal of plant and equipment) in 1H22 was a strong turnaround from the core net loss of RM18.3 million in 1H21. No dividends were declared, as expected,” said Sharizan.He added the cement and construction divisions saw revenues fall 19%-36% YoY in 1H22, affected by the slow recovery in construction billings post the lifting of lockdown restrictions in October 2021, competitive cement average selling prices (ASPs) of approximately RM200 per tonne, and weak market conditions.“We see improvement in construction pre-tax margin from 7% in 1H22 to 9-10% in 2H22 as progress of the Gemas-JB project (70% completed) regains traction. The domestic cement’s pre-tax margin is set to improve from the 5% achieved in 1H22, on the back of higher ASPs of RM270 per tonne following the price hike (mitigating the impact of higher coal cost),” the report stated.The hotel division’s pre-tax losses narrowed 49% YoY, driven by better operating conditions for overseas hotel assets, although the recovery of the domestic hospitality business still hinges on the government’s plan to reopen international borders in March.Utilities pre-tax profit slipped 2.7% YoY due to higher fuel cost but offset by higher retail margin for the multi-utilities business.
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