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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

YTL Cement Share Price

Fair Value
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
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
market capitalisation and share liquidity relatively to Lafarge. Maintain

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
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
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


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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