Bullish dividend plan by YTL Corp

CGS-CIMB Research said YTL reiterated that it will exercise fiscal discipline to keep its cash level at US$3bil (RM14bil) at any point for strategic acquisitions.

PETALING JAYA: YTL Corp Bhd will be paying RM1bil in dividends per year, translating into 9.5 sen in dividend per share, and a yield of 10% a year for the financial years 2024-2025 (FY24-FY25).

This is higher than CGS-CIMB Research’s forecast of six sen per year for FY24-FY25.

The research firm recently organised a non-deal roadshow involving YTL’s management with 10 investors in Singapore. YTL was represented by its chairman Tan Sri Francis Yeoh.

During the meeting, CGS-CIMB Research said YTL reiterated that it will exercise fiscal discipline to keep its cash level at US$3bil (RM14bil) at any point for strategic acquisitions.

“It could unlock value over the next few years by paring down stakes in assets such as Singapore’s PowerSeraya and Wessex Water in the UK via a possible listing as investors continue to discount its RM72bil asset base (as at FY22),” CGS-CIMB Research said.

The caveat, it added, is there needs to be stability in the cyclical cement and construction businesses, with key projects such as the mass rapid transit three and high-speed rail (HSR) rolled out.

However, it said the group’s core assets such as Malaya Cement Bhd, including its Vietnam venture, core land bank in Sentul of 165 acres, PowerSeraya and Wessex Water were not for sale.

“Peripheral assets will be disposed of, with the most recent being its land in Perak, which will bring in cash of RM70mil,” added the research firm.

A question raised was why YTL was engaging the investment community now.

To this, CGS-CIMB Research said YTL believes the current government will return to business and accelerate project flows post-state elections and believes it has a key role to play.

It also wants to groom the next generation, which will eventually be more involved in the business.

Concern was raised on the sustainability of profits from Power Seraya in light of the introduction of a temporary price cap mechanism in Singapore from July this year.

“YTL believes profits from PowerSeraya in the third quarter of FY23 can sustain the business for the next three years and the government’s intention was to curb extreme price volatility and not to hinder a free market.”

The research firm noted that 80% of PowerSeraya’s revenue is from long-term contracts while prices are fixed and gas costs hedged. As such, it bypasses the volatility of the wholesale market.

Another issue raised was whether the revival of the HSR project was feasible and if it can be operational by 2030.

“YTL revealed that it is one of the five companies shortlisted and there have been several discussions with the government.

“It believes there is still a land corridor available to facilitate land acquisition by the government and there could be an infrastructure-led focus by the government soon,” said CGS-CIMB Research.

Meanwhile, the group explained that the recent bid for Boustead Plantations Bhd is related to the expansion of its data centre business.

In its report, the research firm reiterated its “add” call on the stock with an unchanged target price (TP) of RM1.28. The TP is based on a 20% discount to the sum-of-parts valuation.

“YTL trades at 12 times the price-to-earnings ratio and 0.8 times the price-to-book value for calendar year 2024.

“This, in our view, is inexpensive given the strong earnings visibility driven by a recovery in cash-generating utility profits and also cement earnings,” said CGS-CIMB Research.

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