YTL Corp spruces up its infra outlook

  • Construction
  • Thursday, 16 Jan 2020

PETALING JAYA: CGS-CIMB Equities Research is cautiously optimistic about YTL Corp’s strategy of making a comeback in the KL-Singapore high-speed rail (HSR) space ahead of the May 2020 deadline of the HSR’s review period.

In its report, it said YTL aimed to leverage on its ERL (construction, concession and funding) track record should HSR’s tender rounds emerge in 2H20F (best-case scenario).

CGS-CIMB Research raised its target price to RM1.04 from 99 sen (lower 30% RNAV discount) to reflect the recovery of HSR newsflow in 2Q20 but maintains a hold call ahead of actual HSR outcome in May.

The key takeaway from YTL Corp’s small group meetings during the research house’s recent Malaysia Corporate Day was that it was turning more upbeat on its infrastructure outlook

The company sees the tail-end of the HSR review period as an opportunity to re-propose to the government a cheaper HSR alternative.

YTL Corp expects stronger earnings contributions from the ongoing Gemas-JB electrified rail double tracking (ERDT) project in the coming quarters.

As for Malayan Cement (77%-owned by YTL Corp), it targets an earnings turnaround within the next 12 to 18 months, driven by cost synergies, recovery in demand and higher ASPs.On the HSR, the group’s strategy is to propose to the government an alternative HSR model with a potential 30% reduction in the total original construction (civil works) cost of RM45bil.

The group believes its track record in the Express Rail Link (ERL) construction (plus concession ownership) and the ongoing Gemas-JB ERDT should give it an edge.

“At this juncture, we are cautiously optimistic on YTL reviving its sizeable exposure on the HSR project given the highly competitive tender environment. Other risks include a substantial foreign turnkey contractor’s participation, similar to the East Coast Rail Link (ECRL) project, ” it said.

For Malayan Cement, which is 77%-owned by YTL Corp, the group remains committed to turning the company around within the nextwithin the next 12 to 18 months.

This will be done in stages, with cost cutting and optimisation initiatives being the first priority, and lowering Malayan Cement’s average cost of RM200/tonne to YTL Cement’s RM160 a tonne average.

The group thinks that further upside from the current average RM200 to RM230/tonne (ex-rebates) would hinge on the delayed cement intensive phase of the ECRL.

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