KUALA LUMPUR (May 24): Shares in utilities-to-hotels conglomerate YTL Corp Bhd (KL:YTL) and its related stocks on Friday snapped consecutive days of rally, despite notching earnings growth in their financial results for the third quarter ended March 31, 2024 (3QFY2024).
YTL Corp fell by as much as 9%, while YTL Power International Bhd (KL:YTLPOWR) declined as much as 11.3%. Malayan Cement Bhd (KL:MCEMENT) saw a decrease of as much as 1.9%.
At Friday's noon break, shares in YTL Corp were down by 21 sen or 5.4% to RM3.67, while shares in YTL Power fell by 44 sen or 8.2% to RM4.94. MCement declined by five sen or 0.9% to RM5.30.
While the majority of institutional analysts remain optimistic about YTL Power, especially its data centre business, at least two institutional analysts have downgraded their calls from 'buy' to 'hold', following a significant surge in the counter's share price, which has seen it gain over 300% in the past year.
CGS International said the take-up rate for the group’s data centre business needs to increase, especially after the market has already factored in its over RM12 billion in value. The research house pointed out potential downside risks, including execution setbacks and market risks associated with the data centre projects, as well as significant capital expenditure that could elevate gearing.
Nevertheless, the house assumed a higher earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin of 80% from 65% for FY2027, once capacities of the data centres are fully ramped up, with further clarity of the potential profitability of such operations.
Maybank Investment Bank also said that while the market remains bullish on YTL Power’s artificial intelligence (AI) exposure, deployment plans remain fluid and demand-dependent.
Meanwhile, Hong Leong Investment Bank highlighted that the group would see stronger earnings over the next three financial years, driven by an anticipated turnaround of its UK-based wastewater management subsidiary Wessex Water, on top of contributions from the data centres.
“The group has a strong advantage as Nvidia’s preferred partner in Malaysia for AI cloud service providers, as compared to other data centre owners, as it is difficult and costly to convert a conventional data centre to an AI data centre infrastructure,” the research house noted.
Overall, 10 analysts rated YTL Power a 'buy', while three have assigned 'hold' calls, Bloomberg data showed. The consensus 12-month target price stood at RM6, representing a potential upside of around 21.5% from its current price of RM4.94.
For 3QFY2024, YTL Power posted a 34.5% year-on-year increase in net profit to RM698.69 million from RM519.64 million, mainly driven by its power generation and investment holding segment, which houses its data centre development operations. Revenue came in slightly lower by 3.7% at RM5.16 billion, compared with RM5.36 billion previously, it showed in a bourse filing on Thursday.
Malayan Cement expected to benefit from key infrastructure projects
On the other hand, analysts are bullish on MCement, believing that the company will benefit from the roll-out of key infrastructure projects in both the public and private sectors.
Bloomberg data showed that all six institutional analysts covering MCement recommended 'buy', with a consensus target price of RM6.39. This translates into a 20.5% potential upside.
MIDF Research highlighted that MCement is poised to benefit from civil projects, such as the construction of the Penang Light Rail Transit (LRT) and the redevelopment of Kuala Lumpur Sentral, as well as private projects, including data centres, warehouses and semiconductor factories.
It said ongoing projects such as the likes of the East Coast Rail Link (ECRL), Rapid Transit System (RTS) and LRT 3 will also sustain demand for cement.
Meanwhile, CGS International pointed out that MCement had achieved a 40% cement market share in Singapore, and that demand for cement in Singapore is expected to grow, due to a slew of megaprojects, such as Changi Terminal 5, integrated resorts' expansion, the Tuas megaport and Mass Rapid Transit (MRT) projects.
MCement posted a 60% jump in 3QFY2024 net profit to RM101.24 million, from RM63.28 million a year ago, on an increase in revenue of 10.9% to RM1.10 billion from RM990.71 million.