YTL Corp's order book expected to balloon with Gemas-JB rail project, say analysts

KUALA LUMPUR (Dec 14): YTL Corp Bhd is expected to see its order book balloon sizeably should it secure a package from the Gemas-Johor Bahru electrified double-tracking railway project, say analysts.

Yesterday Nikkei Markets reported YTL Corp's managing director Tan Sri Yeoh Sock Ping as saying at the group's AGM that the company had secured a package from the RM8.9 billion Gemas-Johor Bahru electrified double-tracking railway project. However, no further details were disclosed.

Recall that The Edge in its Oct 30, 2017 issue reported that YTL Corp is one of few local companies that stand to be awarded subcontracting works from this project.

The project covers 191km in the southern region, from the state of Negeri Sembilan to the state of Johor. This rail double-tracking is an extension of the RM12.5 billion, 329km Ipoh-Padang Besar northern double-tracking project that was completed in 2012.

The overall project was awarded to a consortium of three China-based companies in October last year — China Railway Construction Corp Ltd (CRCC), China Railway Engineering Corp (CREC) and China Communications Construction Co (CCCC). CRCC holds a 40% stake in the joint venture while CREC and CCCC each own 30%.

Analysts believe earnings from the package will be meaningful to the group's bottom line moving forward.

"We estimate YTL's construction order book was valued at RM500 million at end-1QFY18, with most of the works in hand being in-house property development jobs. Assuming that YTL secures 40%-70% of the Gemas-JB rail job, its order book will be boosted significantly by 7x-12x to between RM4.1 billion and RM6.7 billion, equivalent to 7.1x-11.8x of its FY17 construction revenue," CIMB Research said in a note yesterday.

CIMB Research added that the worst is over for the group's share price.

"We maintain our FY18-FY20 earnings per share (EPS) forecasts pending an official announcement. Retain Add due to improved visibility for rail order replenishments, its potential participation in KL-Singapore HSR and the Gemas-JB rail projects. We believe the worst is over for its share price. Its target price of RM1.48 remains pegged to a 20% Revalued Net Asset Valuation discount," said CIMB Research.

MIDF Research agreed that even half a portion secured on the work packages would benefit the group's construction revenues given dismal earnings over the past few years.

"Even if YTL scores just 50% of the work packages (or RM4.3 billion), the impact on its construction revenue and profit could be substantial. YTL's construction revenue and earnings has been pretty dismal in the past few years i.e. RM112 million/RM145 million revenues over FY16/17 and RM13 million/RM57 million pre-tax profits. The Gemas-JB project win could easily more than quadruple YTL's current order book of RM1 billion (comprising mostly internal jobs)," said MIDF Research in a note today.

MIDF Research maintains its "buy" call on the stock with a target price of RM1.40.

At 11.46am, YTL Corp shares were up two sen or 1.63% at RM1.25, with a market capitalisation of RM13.22 billion. Year to date, the stock fell 18%. — theedgemarkets.com

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