YTL Corp: FY12 ends on a high note (ECM)
YTL Corp
12-month upside potential Target price 2.44
Current price (as at 16 Aug) 1.91
Capital upside (%) 27.7
Net dividends (%) 1.4
Total return (%) 29.1

YTL Corp reported its FY12 adjusted net profit of RM1.14bn, which met street and our expectations. No dividend was declared for 4QFY12. Maintain BUY on the stock with target price at RM2.44 based on sum-of-parts in the event that YTL Power is taken private by YTL Corp at close to its current market price. 

Results were driven by construction and management services
YTL Corp’s FY12 net profit of RM1.14bn was within expectations, accounting for 103% and 96% of street and house full-year estimates respectively. Adjusted net profit swelled 14.4% y-o-y on the back of a 11.4% increase in revenue to an all-time high of RM20.44bn.

The key drivers behind the growth in YTL Corp’s bottomline figures for the year were the Construction and Management Services & Others (MSO) business divisions. Construction posted a 527.3% increase in pretax profit (PBT) to RM96.6m in FY12, fuelled by higher progress billing recognition of construction work done on various ongoing property development and infrastructure projects in Malaysia. The MSO division registered a 104.4% jump in PBT during the same period, mainly attributed to the operations and maintenance contract of power plants in Lebanon undertaken by YTL Corp’s wholly-owned subisidary YTL Power Services Sdn Bhd.

YTL Corp also received a boost from its Cement Manufacturing and Trading division, which chalked up a 9.6% PBT gain for FY12, due to higher sales volume of its cement and ready-mix concrete products via its subsidiary YTL Cement Bhd.

YTL Corp’s core Utilities business saw PBT drop by 16% despite an 8.5% increase in sales to RM15.77bn in FY12. Revenue increased mainly because of stronger electricity sales y-o-y from YTL Power Generation Sdn Bhd’s and PowerSeraya’s power plants in Malaysia and Singapore respectively. However, this was offset by higher fuel, depreciation and maintenance charges as well as start-up costs for its YES! 4G mobile wireless broadband network during the period.

Outlook for FY13
Despite the lacklustre performance by the Utilities in FY12, we expect the division to register higher profits in the coming financial year as initial losses sustained by its mobile broadband business under its indirect subsidiary YTL Communications Sdn Bhd (YTL Comms) start to narrow, and YTL Comms grows its YES! 4G network subscriber base. We also opine that PowerSeraya, a key contributor to Utilities earnings, will deliver better results to YTL Corp’s bottomline by passing on additional fuel charges and fixed costs through an increase in its electricity tariffs to customers. YTL Power International Bhd (YTL Power) could also reap extra benefits should the Singapore Dollar continue to strengthen against the Ringgit.

We expect the net profit contribution from YTL Cement to YTL Corp to expand on the back of better sales volume to meet increased demand for cement material by the domestic construction industry, which we opine is at the cusp of a boom backed by major long-term building as well as infrastructure projects such as the upcoming Tun Razak Exchange and Klang Valley MRT project. The Cement Manufacturing and Trading division would also benefit from lower fuel costs (especially coal whose price has slid by a big margin since last year) and higher selling cement price following the 6% price hike effective 1 Aug 2012. 

Valuation and recommendation
We make no changes to FY12 – FY14 EPS estimates for now.
Reiterate our BUY rating on YTL Corp with target price unchanged at RM2.44, derived from our sum-of-parts valuation in the event that YTL Power is taken private by the parent company at close to its current market price.