PP 7767/09/2010(025354)

31 May 2010

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts N o t e
31 May 2010
MARKET DATELINE

YTL Cement Share Price

Fair Value
:
:
RM3.81
RM5.51
3QFY06/10 Performance Rises On One-Off Gains; Recom : Outperform
Anticipating Better 4Q (Maintained)

Table 1 : Investment Statistics (YTLCMT; Code: 9737) Bloomberg: YTLC MK

Core Core EPS Net
FYE Turnover Net EPS EPS# Growth PER# C.EPS* P/NTA Gearing ROE GDY
Jun (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2009a 1,972.8 240.5 51.3 51.3 74.7 8.5 - 1.5 0.1 14.7 6.9
2010f 1,843.1 246.5 57.3 50.1 -2.2 8.7 - 1.3 Cash 17.6 6.9
2011f 1,914.9 268.1 54.5 54.5 8.8 8.0 - 1.2 Cash 15.2 6.9
2012f 1,922.1 258.2 52.5 52.5 -3.7 8.3 - 1.1 Cash 12.8 6.9
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ In line. 9MFY06/10 core net profit of RM201.9m came in at 67.6% of our RHBRI Vs. Consensus
full-year forecast. However, we consider this within our expectation as we Above -
expect 4Q to come in stronger on the back of the 10% increase domestic In Line -
cement price effective 1 May 10. Below -

♦ Dividends. YTLC declared a third interim single-tier dividend of 3.75 sen Issued Capital (m shares) 492.1
(payable on 30 Jun 2010) bringing total dividend to 11.25 sen. Market Cap(RMm) 1874.78
♦ YoY. 9MFY06/09 net profit increased by 19.4% to RM201.9m from
Daily Trading Vol (m shs) 0.27
52wk Price Range (RM) 3.8-4.8
RM169.0m a year ago due to lower sales volume that was more than offset
Major Shareholders: (%)
by: 1) better operational efficiencies; 2) one-off gain arising from the
YTL Group 49.0
disposal of its 21.5% stake in Jurong Cement Ltd; and 3) lower finance
Deustche Bank 9.1
costs.
♦ QoQ. 3QFY06/10 net profit rose by 34.8% to RM76.1 from RM56.5m mainly
due to: 1) the gain on disposal of its share in Jurong cement; 2) better FYE Jun FY10 FY11 FY12
operating margins arising from operational efficiencies; 3) lower finance EPS Revision (%) - - -
costs; and 4) a lower tax expense (on the back of a lower effective tax Var to Cons (%) - - -
rate).
PE Band Chart
♦ Future prospects. We expect the roll-out of public projects (under the 9MP
PER = 15x
and the two stimulus packages) to boost cement consumption in the near PER = 12x
term. Over the medium term, we expect the recent pick-up in property PER = 9x
PER = 6x
launches (arising from encouraging take-up rates of new property launches
of late) to boost domestic cement consumption as well. However we believe
better performance at YTLC’s domestic operations will be partly offset by:
(1) Weaker performance at its China operations on the back of intense
competition arising from overcapacity; and (2) Lower margins at its
Singapore operations, as margins of the new ready-mixed concrete supply
contracts in Singapore (which will commence from CY2010) are less
lucrative vis-à-vis the existing supply contract with Sentosa integrated Relative Performance To FBM KLCI

resorts (IR) project in Singapore that is already at the tail end. YTL Cement
♦ Risks to our view. The risks include: (1) Lower-than-expected roll-out of
public infrastructure projects, resulting in lower demand for cement; and FBM KLCI
(2) Escalating in energy costs, such as coal and diesel prices and electricity
tariff.
♦ Forecasts. Unchanged.
♦ Investment case. Indicative fair value is RM5.51 based on 11x CY2010
EPS of 50.1 sen, at a 3x multiple discount to our 1-year forward target PER
for Lafarge (the market leader) of 14x. This is to reflect YTL Cement’s Chye Wen Fei
smaller market capitalisation and share liquidity relatively to Lafarge. (603) 92802172
Maintain Outperform. chye.wen.fei@rhb.com.my

Please read important disclosures at the end of this report.

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Table 2: Earnings Review (YoY Cumulative)

FYE June 2009 2010 % YoY Observations/ Comments
9M 9M Chg
Turnover 1,436.8 1,360.2 -5.3 Due mainly to lower sales volume.
Operating profit 281.0 331.5 18.0 Boosted by: (1) Margin expansion arising from improved operational
efficiencies; and (2) One-off gain arising from the disposal of 21.5% Jurong
Cement Ltd.
Finance costs -34.5 -23.7 -31.2
Associates -0.8 -0.8 -7.6
Pretax profit 245.7 307.0 24.9 Helped further by lower finance costs.
Taxation -62.5 -76.1 21.8
Minority interest -14.2 -29.0 >100 Reflecting improved performance from 64.8%-owned Perak Hanjoong.
Net profit 169.0 201.9 19.4 Filtered down from pretax profit.
EPS 34.4 41.0 19.4

Operating margin (%) 19.6 24.4 4.8 pts

Pretax margin (%) 17.1 22.6 5.5 pts
Net profit margin (%) 11.8 14.8 3.1 pts
Effective tax rate 25.4 24.8 -0.6 pts

Table 3: Earnings Review (QoQ)

FYE Jun 2010 2010 2010 % QoQ Observations/ Comments
(RMm) 1Q 2Q 3Q Chg
Turnover 447.6 483.6 429.0 -11.3
Operating profit 113.0 104.6 113.9 8.9 Boosted by: (1) Margin expansion due to better operational
efficiencies ; and (2) One-off gain arising from the disposal of
21.5% Jurong Cement Ltd.
Finance costs -6.6 -9.0 -8.1 -10.3
Associates 0.1 -0.7 -0.1 -89.3
Pretax profit 106.5 94.8 105.7 11.5 Boosted further by lower finance costs.
Taxation -27.8 -25.9 -22.4 -13.6 Effective tax rate decreased to 21.2% from 27.3% in the previous
quarter.
Minority interest -9.4 -12.4 -7.2 -42.0
Net profit 69.3 56.5 76.1 34.8 Filtered down from pretax profit, and lower effective tax rate
EPS (sen) 14.1 11.5 15.5 34.8

Operating margin (%) 25.2 21.6 26.5 4.9 pts

Pretax margin (%) 23.8 19.6 24.6 5.0 pts
Net profit margin (%) 15.5 11.7 17.7 6.1 pts
Effective tax rate 26.1 27.3 21.2 -6.2 pts

Table 4: Earnings Forecasts Table 5: Forecast Assumptions

FYE Jun FY09A FY10F FY11F FY12F FYE Jun FY10F FY11F FY12F

Turnover 1,972.8 1,843.1 1,914.9 1,922.1 Malaysia Operations ('000 tonnes p.a.)
Turnover growth (%) 35.0 -6.6 3.9 0.4 Clinker Capacity 4,200 4,200 4,200
Grinding Capacity 5,700 5,700 5,700
EBITDA 500.1 493.0 513.4 491.6
EBITDA margin (%) 25.3 26.7 26.8 25.6 Malaysia Operations ('000 tonnes p.a.)
Clinker Capacity 1,550 1,550 1,550
Depreciation -92.5 -89.1 -85.8 -82.2 Grinding Capacity 1,500 1,500 1,500
Finance costs -43.2 -48.5 -46.4 -41.4
Associate -1.7 3.0 3.0 3.0 Exchange Rate Assumptions
Exceptional income 0.0 35.3 0.0 0.0 RM/RMB 0.52 0.52 0.52
Pretax profit 362.7 393.7 384.2 370.9 US$/RM 3.50 3.50 3.50
Taxation -96.5 -85.3 -96.0 -92.7
Minority interests -25.7 -26.6 -20.0 -20.0
Net profit 240.5 281.8 268.1 258.2
Exceptional income 0.0 -35.3 0.0 0.0
Core net profit 240.5 246.5 268.1 258.2
Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or more
over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take on
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Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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