The research house said YTL’s management stressed that despite recent news pointing to the possible participation of Chinese contractors/funders for the HSR, YTL Corp remained committed to its HSR proposal.
“The group believes that its HSR proposal is still competitive, as it leverages on its track record in building and managing the Express Rail Link (ERL),” it said.
CIMB Research recently hosted a two-day non-deal roadshow for YTL Corp in Singapore where the management met 10 buy-side houses.
The research house said investors’ concern throughout the meetings was whether YTL is out of the HSR game.
“The answer is ‘no’ and the group looks forward to the international tender at end-2016. HSR remains the “alpha”; Add retained
“Investors took note of the guidance that YTL Power’s earnings could stabilise and recover in the medium term, while the turnaround of the mobile internet division is expected over the next 12 months.
“However, we sensed that investors would be more convinced once the numbers flow through. The game changer remains the HSR. Our target price (of RM1.85) remains pegged at a 20% discount to RNAV. A recovery in HSR news flow and sustained strong dividends are likely rerating catalysts. Maintain Add,” it said.
Among the highlights of the roadshow were YTL’s RM4.3bil order book to build the Tanjung Jati power plant which was a positive surprise while the Express Rail Link (ERL) is a significant source of cashflow from higher tariff while there was sustained stable cashflows supporting dividend yield of over 6%. The construction news flow and strong dividend flows are key catalysts.
CIMB Research said the RM4.3bil order book from Tanjung Jati a positive surprise, adding the recently secured RM11.6bil coal-fired power plant (1,320 MW) in Indonesia represented the group’s second power plant there.
A positive surprise was that the EPC scope will be undertaken by YTL Corp. This implies a significant bump in order book to RM4.3bil over four years from 2016, or RM108mil in pretax profit based on 10% margin.
The good news is that earnings from the EPC should start to flow through from 2HCY16 onwards. YTL Cement is also set to benefit from the cement required. Dividend outlook remains strong at over 6% yield
“Management stressed that even with the capex for Tanjung Jati, YTL Corp should be able to sustain its dividend payout of at least RM1bil, that is an over 80% payout ratio.
“The yield is the highest within our construction universe and thanks to the support of cement and utilities, it is expected to be wholly funded by the group’s internal operations, not affecting its consolidated cash of RM16bil. Also, 50%-owned ERL could prove to be a surprise contributor to the group’s dividend comeback story,” it said.