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YTL E-Solutions Bhd
YTL E-solutions (Fundamental: 1.95/3, Valuation: 2.1/3) will appeal to investors looking for steady dividend income stream with a low tolerance for risks. 

The company owns 60% of the rights to 30MHz of the 2.3GHz WiMAX spectrum, which it leases to YTL Communications, operator of the “Yes” mobile and Internet services. The company also creates content and delivers advertising on digital narrowcast media networks — including the digital “cube” fronting Lot 10 shopping center in the Bintang Walk area and on the Express Rail Link trains to KLIA.

For FYJune2014, the Communications Technology segment, which owns the WiMax spectrum, contributed RM75.1 million or 86.5% of YTLE’s total revenue and the bulk of earnings. The remaining 5.9% and 7.6% of sales were from the Content & Digital Media and Information Technology & E-commerce, respectively.

The spectrum sharing business is expected to remain the main earnings contributor for the foreseeable future. Under the agreement with YTL Communications, the company will receive a minimum RM75 million annually or 15% of the WiMAX services revenue, whichever is higher.

Thanks to the spectrum sharing agreement, YTLE’s turnover has been steady, ranging from RM74- 88 million between FY11 and FY14 while net profit hovered around RM30-36 million over the same period. Net margin was roughly 41%, on average.

Dividends were raised to 4 sen per share in FY14, up from 2 sen in FY11-FY13. We believe this new level is sustainable, at least, supported by steady cashflow and strong balance sheet. This translates into a higher-than-market average net yield of 7.48%. 

YTLE has built up quite a cash pile, from RM185.9 million in FY11 to RM192.3 million in 2QFY15. This is equivalent to 14 sen per share, or 26.2% of its market capitalization of RM719.8 million. 

The company is 74.1% owned by YTL Corp, which also controls YTL Communications.

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This article first appeared in The Edge Financial Daily, on March 6, 2015.

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