KUALA LUMPUR (Oct 3): MBSB Research downgraded YTL Corp Bhd (KL:YTL) to a 'trading buy' while maintaining its target price of RM2.99 following the recent uptick in the company's share price.
"...though we still expect some upside from positive news flows," the research house said in a note on Friday.
MBSB's optimism is firmly tied to YTL's potential acquisition of Sarawak Consolidated Industries Bhd's (KL:SCIB) unit, a deal that opens up vast opportunities in Sarawak.
The company has made an indicative offer of RM113 million for SCIB Concrete Manufacturing Sdn Bhd, which SCIB's board has resolved to accept.
SCIB shares jumped 30% or five sen in early trade on Friday to 21.5 sen following the announcement. YTL shares slipped one sen or 0.4% to RM2.79, valuing the group at RM32.4 billion.
This would grant YTL immediate access to a renowned downstream capability, bringing under its wing a manufacturer of precast concrete pipes and prestressed spun concrete piles that is deeply entrenched in the region.
MBSB view the acquisition as fair. On the assumption that 70% of the profit after tax contribution comes from SCIB Concrete, the indicative purchase price of RM113 million translates to a FY2024 price-earnings ratio of 14 times, it added.
"We believe this will synergise well with its involvement with the Sarawak government to strengthen the cement supply chain in the state," it said.
In July 2023, YTL Cement inked a memorandum of understanding with state-owned Innocement Sdn Bhd to improve the cement supply chain in light of the state’s rapid infrastructure development.
Beyond this strategic purchase, MBSB continues to like YTL for its masterful positioning at the heart of Malaysia's infrastructure upcycle.
The company is a direct beneficiary of a strong construction sector, with its cement and building materials business supplying critical projects like warehouses, data centres, and residential developments.
Furthermore, the upcoming Johor-Singapore Special Economic Zone is poised to become a powerful new catalyst for growth on the horizon.
While the recent share price strength prompts a more tactical trading recommendation, the underlying story remains robust, said MBSB.
This is based on YTL's current position of not just riding the construction wave but ventures into data centres and renewable energy.