YTL trading at depressed value after FY21 earnings missed expectations

YTL’s FY21 results are below expectations mainly due to higher tax rates, an analyst says 


YTL Corp Bhd is still trading at a depressed financial year 2021 (FY21) price-to-book value of 0.57 times because of the uncertain outcome of the Kuala Lumpur-Johor Baru High-Speed Rail project, according to CGS-CIMB Securities Sdn Bhd. 

Its analyst Sharizan Rosely stated that the deal to inject YTL Cement Bhd’s domestic assets into Malayan Cement Bhd (pending completion) should unlock value for its integrated domestic cement operations and potentially help remove the overhang on its share price. 

The brokerage retained its ‘Add’ call for the company with a higher target price (TP) of 84 sen, unchanged 40% revalued net asset value discount, as the firm updated the market cap of listed units and the higher TP of YTL Power International Bhd. 

“Upside risks are contract wins and potential regional cement merger and acquisitions. Downside risks include weaker earnings and prolonged negative impact of tighter lockdown measures,” Sharizan wrote in a research report last week. 

He noted that YTL’s FY21 results were below expectations mainly due to higher tax rates. 

YTL had widened its net loss to RM408.51 million for its fourth quarter ended June 30, 2021 (4Q21), compared to a net loss of RM251.59 million in 4Q20, due to RM595 million deferred tax. 

Its pre-tax profit surged 181.3% year-on-year (YoY) to RM110.16 million in the quarter under review against a net loss of 135.52 million a year prior, due to better performance of YTL Power and Malayan Cement. 

Revenue rose 23.5% YoY to RM4.37 billion in the quarter compared to RM3.54 billion a year prior. 

For FY21, YTL recorded a net loss of RM368.69 million compared to a net loss of RM189.22 million, while revenue for the fiscal year slid 9.5% YoY to RM17.36 billion from RM19.18 billion last year, due to a drop in revenue for all of its segments. 

“The cement division’s FY21 revenue was flat, indicative of weak market conditions but slightly improving average selling prices. 

“Cement’s FY21 core pre-tax profit margin (excluding divestment gains) stood at 2.8% versus losses in FY20. We expect the cement division’s operating environment to remain challenging in the second half of FY21 given the absence of mega projects to catalyse demand,” Sharizan wrote. 

Maybank Investment Bank Bhd (Maybank IB) maintained its ‘Hold’ rating for YTL Power with a TP of 70 sen. 

The investment bank cut the power producer’s FY22 and FY23 net profit expectation by 39% and 38%, respectively, to reflect latest run rates and the delayed commissioning of Attarat Power Plant, likely in the calendar year 2022. 

MAybank IB analyst Tan Chi Wei noted that YTL Power’s earnings could recover meaningfully upon commissioning of the Attarat Power Plant. 

Tan said 4Q21 results were below the research house or consensus forecasts as YTL Power unexpectedly swung into losses. 

He said, encouragingly, YTL Power declared a second interim dividend of 2.5 sen for FY21. YTL Power recorded a wider net loss of RM486.7 million for its 4Q21 compared to a net loss of RM140.78 million in 4Q20, due to the deferred tax as well.

Revenue for the quarter increased 32.1% YoY to RM3.03 billion from RM2.29 billion in 4Q20. 

For the full year, the group recorded a net loss of RM143.07 million compared to a net profit of RM67.64 million last year. 

Revenue came in 1.4% higher YoY to RM10.78 billion from RM10.64 billion last year. “For the quarter, both PowerSeraya Pte Ltd and Wessex Water Services Ltd pre-tax profit declined quarter-on-quarter (QoQ) despite higher revenue.

“In our view, the higher costs could have again been due to increased provisioning for receivables. Mobile maintained its positive momentum with pre-tax losses narrowing QoQ, while associate income was higher QoQ,” Tan said.