KEY INVESTMENT HIGHLIGHTS

• 1QFY25 result within our estimates but slightly ahead of consensus
• Lower pool and retail prices led to lower earnings for utilities, but cement and water businesses performed
• Actively tendering for external construction jobs
• Maintain BUY with a revised TP of RM3.93

Within expectations. YTL Corp's (YTL) 1QFY25 result came in within our expectations, making up 29.1% of full-year estimates but above consensus at 31.1%. The group posted a core net profit of RM615.8m during the quarter, on the back of a stronger revenue of RM7.77b (+3.4%yoy).

Key takeaways. The Utilities division posted a reduction in PBT by - 16.3%yoy to RM778.7m, mainly due to lower pool and retail prices. Its cement and building materials business saw a +49.3%yoy growth in PBT to RM243.5m, despite a slightly lower revenue of RM1.38b (-2.0%yoy). The decline in revenue came mainly from lower sales volume and selling prices in the Singapore market but the stronger bottom line was achieved through improved operational efficiencies and lower production costs.

The stronger performance by Wessex Water also boosted YTL's bottom line, attributable to the increase in tariff as allowed by the regulator in the UK. The construction division on the other hand, saw a six-fold increase in PBT to RM7.0m due to an increase in work completed and stronger margins. We note that the contribution from the segment is still low as a major portion of their projects are internal jobs.

Industrial projects to drive cement demand. We expect FY25E to continue being driven by the private sector, with projects such as warehouses, data centres and residential projects. On the civil side, we expect projects such as the Penang LRT, airport expansions and other projects under Budget 2024 such as roads, schools and hospitals to drive demand. We also understand that YTL is actively tendering for projects in an effort to beef up its order book with external jobs.

Synergistic opportunities from NSL. YTL has recently completed the acquisition of an 81.24% stake in SGX-listed NSL Ltd for SGD227.6m (RM792.3m), whose core businesses are in precast and prefabricated bathroom unit (PBU) and environmental services. The acquisition will also open doors for YTL to the industrialised building system (IBS) business.

Earnings estimates. Our earnings projections remain unchanged.

Maintain BUY. We revise our SOP-derived TP to RM3.93 (from RM4.19 previously) after factoring in a lower TP for YTL Power at RM5.64 from RM6.20 previously and a higher TP for Malayan Cement at RM6.81 from from RM6.60. previously. Our TP implies 19.6x FY25F PER, which is still below YTL's 10-year historical mean PER. We continue to like YTL as a beneficiary of the infrastructure upcycle as well as the strategic venture into data centers and renewable energy via its utilities division.

Source: MIDF Research - 27 Nov 2024