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PP 7767/09/2010(025354)

1 March 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
1 March 2010
MARKET DATELINE

YTL Cement Share Price


Fair Value
:
:
RM4.06
RM4.16
2QFY06/10 Performance Weakens QoQ On Weaker Recom : Underperform
Cement Sales; Weak Quarters Ahead (Maintained)

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


Net Core EPS Net
FYE Turnover Profit 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 7.9 - 1.4 0.1 14.7 7.4
2010f 1,820.3 263.2 53.7 46.5 -9.3 8.7 - 1.3 Cash 16.6 7.4
2011f 1,823.9 225.9 46.1 46.1 -0.9 8.8 - 1.2 Cash 13.3 7.4
2012f 1,830.0 229.0 46.7 46.7 1.4 8.7 - 1.0 Cash 11.9 7.4
Main Market Listing / Trustee Stock / Syariah-Approved Stock By The SC * Consensus Based On IBES Estimates

♦ In line. 1HFY06/10 net profit of RM125.7m came in at 55.2% of our full- RHBRI Vs. Consensus
year forecast. We consider this within our expectation as we expect new Above -
In Line -
ready-mixed concrete supply contracts in Singapore, which were locked in
Below -
at much lower prices (to fill the vacuum left by its existing high-margin
supply contract that is now at the tail end) will bring down YTLC’s overall Issued Capital (m shares) 490.7
margins, and hence the bottomline over the next few quarters. Market Cap(RMm) 1,997.0
♦ Declared 2nd interim dividend. YTLC declared a second interim single-tier
Daily Trading Vol (m shs) 0.1
52wk Price Range (RM) 2.42 – 4.80
dividend of 3.75 sen (payable on 31 Mar 2010), bringing total dividend to
Major Shareholders: (%)
7.5 sen YTD. YTL Group 49.0
♦ YoY. 1HFY06/09 net profit increased by 6.9% to RM125.7m from Deustche Bank 9.1
RM117.6m a year ago as lower sales volume was more than offset by: (1)
Improved efficiencies and lower production costs; and (2) Lower finance
FYE Jun FY10 FY11 FY12
costs. EPS Revision (%) - - -
♦ QoQ. 2QFY06/10 net profit declined by 18.5% to RM56.5m from RM69.3m Var to Cons (%) - - -

mainly due to: (1) Margin erosion arising from lower selling prices; (2)
PE Band Chart
Higher finance costs; and (2) Losses from associates.
♦ Future prospects. We expect the roll-out of public projects (under the 9MP PER =15x
PER = 12x
and the two stimulus packages) to boost cement consumption in the near PER =9x
term. Over the medium term, we expect the recent pick-up in property 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 Relative Performance To FBM KLCI
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
resorts (IR) project in Singapore that is already at the tail end.
YTL Cement
♦ Risks to our view. The risks include: (1) Stronger-than-expected roll-out
FBM KLCI
of public infrastructure projects, resulting in higher demand for cement; and
(2) Lower-than-expected energy costs.
♦ Forecasts. Unchanged.
♦ Investment case. Indicative fair value is RM4.16 based on 9x CY2010 EPS Chye Wen Fei
of 46.6 sen, at a 3x multiple discount to our 1-year forward target PER for (603) 92802172
Lafarge (the market leader) of 12x. This is to reflect YTL Cement’s smaller chye.wen.fei@rhb.com.my
market capitalisation and share liquidity relatively to Lafarge. Maintain
Underperform.

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
6M 6M Chg
Turnover 950.9 931.2 -2.1 Lower sales volume that more than offset slightly higher domestic average
cement selling price, which was raised by RM20 from RM257/tonne to
RM277/tonne in Aug 08.
Operating profit 196.1 217.6 11.0 Margin expansion arising from: (1) Improved operational efficiencies; and
(2) Lower production cost.
Finance costs -24.5 -15.6 -36.3 Net debt declined to RM26.9m from RM387.8m a year ago.
Associates 0.1 -0.7 NM
Pretax profit 171.7 201.3 17.2 Helped further by lower finance costs.
Taxation -43.4 -53.7 23.9
Minority interest -10.7 -21.8 >100 Reflecting improved performance from 64.8%-owned Perak Hanjoong
Simen.
Net profit 117.6 125.7 6.9 Filtered down from pretax profit.
EPS 23.9 25.6 6.9

Operating margin (%) 20.6 23.4 2.7 pts


Pretax margin (%) 18.1 21.6 3.6 pts
Net profit margin (%) 12.4 13.5 1.1 pts
Effective tax rate 25.2 26.7 1.4 pts

Table 3: Earnings Review (QoQ)


FYE Jun 2010 2010 % QoQ Observations/ Comments
(RMm) 1Q 2Q Chg
Turnover 447.6 483.6 8.0
Operating profit 113.0 104.6 -7.5 Margin erosion arising from lower average selling price.
Finance costs -6.6 -9.0 37.2 Net debt increased to RM26.9m from RM14.7m in the previous quarter.
Associates 0.1 -0.7 NM
Pretax profit 106.5 94.8 -11.0 Dragged further by: (1) Higher finance costs; and (2) Losses from
associates.
Taxation -27.8 -25.9 -6.9
Minority interest -9.4 -12.4 32.5 Reflecting better performance at 64.8%-owned Perak Hanjoong Simen.
Net profit 69.3 56.5 -18.5 Filtered down from pretax profit.
EPS (sen) 14.1 11.5 -18.5

Operating margin (%) 25.2 21.6 -3.6 pts


Pretax margin (%) 23.8 19.6 -4.2 pts
Net profit margin (%) 15.5 11.7 -3.8 pts
Effective tax rate 26.1 27.3 1.2 pts

Table 4: Earnings Forecasts Table 5: Forecast Assumptions


FYE Jun FY09A FY10F FY11F FY12F FYE Jun FY10F FY11F FY12F

Turnover 1,972.8 1,820.3 1,823.9 1,830.0 Malaysia Operations ('000 tonnes p.a.)
Turnover growth (%) 35.0 -7.7 0.2 0.3 Clinker Capacity 4,200 4,200 4,200
Grinding Capacity 5,700 5,700 5,700
EBITDA 500.1 474.4 457.0 452.7
EBITDA margin (%) 25.3 26.1 25.1 24.7 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 362.7 375.1 327.8 332.0 US$/RM 3.50 3.50 3.50
Taxation -96.5 -85.3 -82.0 -83.0
Minority interests -25.7 -26.6 -20.0 -20.0
Net profit 240.5 263.2 225.9 229.0
Exceptional income 0.0 -35.3 0.0 0.0
Core net profit 240.5 227.9 225.9 229.0
Source: Company data, RHBRI estimates

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IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank Berhad
(previously known as RHB Sakura Merchant Bankers Berhad). It is for distribution only under such circumstances as may be permitted by applicable law. The
opinions and information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or
be contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

This report does not provide individually tailored investment advice. It has been prepared without regard to the individual financial circumstances and objectives
of persons who receive it. The securities discussed in this report may not be suitable for all investors. RHBRI recommends that investors independently evaluate
particular investments and strategies, and encourages investors to seek the advice of a financial adviser. The appropriateness of a particular investment or
strategy will depend on an investor’s individual circumstances and objectives. Neither RHBRI, RHB Group nor any of its affiliates, employees or agents accepts
any liability for any loss or damage arising out of the use of all or any part of this report.

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investment banking and financial advisory services. In the ordinary course of its trading, brokerage, banking and financing activities, any member of the RHB
Group may at any time hold positions, and may trade or otherwise effect transactions, for its own account or the accounts of customers, in debt or equity
securities or loans of any company that may be involved in this transaction.

“Connected Persons” means any holding company of RHBRI, the subsidiaries and subsidiary undertaking of such a holding company and the respective directors,
officers, employees and agents of each of them. Investors should assume that the “Connected Persons” are seeking or will seek investment banking or other
services from the companies in which the securities have been discussed/covered by RHBRI in this report or in RHBRI’s previous reports.

This report has been prepared by the research personnel of RHBRI. Facts and views presented in this report have not been reviewed by, and may not reflect
information known to, professionals in other business areas of the “Connected Persons,” including investment banking personnel.

The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
upon various factors, including quality of research, investor client feedback, stock picking, competitive factors and firm revenues.

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
higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

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.

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

RHBRI is a participant of the CMDF-Bursa Research Scheme and will receive compensation for the participation. Additional information on recommended
securities, subject to the duties of confidentiality, will be made available upon request.

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actions of third parties in this respect.

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