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RAM Ratings revises long-term outlook on YTL Corp to stable on improved earnings and credit quality, reaffirms AA1 ratings
Published on 18 Jan 2023.
RAM Ratings has revised YTL Corporation Berhad’s (YTL Corp, the Group) long-term rating outlook to stable from negative while concurrently reaffirming the AA1 rating for its RM2 bil Medium-Term Notes (MTN) Programme (2013/2038) as well as the AA1/P1 ratings for its RM5 bil Commercial Papers Programme and MTN Programme (2019/2044).
The outlook revision reflects earnings improvement, better dividend paying capacities of key operating units and the turnaround of loss-making divisions post-pandemic. These factors are supported by easing debts at its key utility arm, YTL Power International Berhad, following the cash boost from the successful disposal of its stake in ElectraNet Pty Ltd. YTL Corp’s combined operating cashflow (OCF) to net debt coverage levels are projected to be above 0.30 times, commensurate with the AA1 ratings. In FY June 2022, combined OCF to net debt coverage continued to exceed expectations, coming in at 0.27 times against the estimated 0.15 times.
Figure 1: Pre-tax profit boosted by disposal gains and stronger power generation earnings
Note: Figures above the bars indicate the respective years’ pre-tax profit.
The Group’s pre-tax profit jumped 145% to RM1.55 bil in FY June 2022, bolstered by the gain on disposal of ElectraNet, land sales and the stronger earnings of its power generation business in Singapore. The one-off disposals provided a RM1.58 bil lift to pre-tax profit. We expect the post-pandemic recovery of the Group’s cement, construction, hotels and real-estate investment trusts segments and continued profit improvement of its power generation business to anchor future core earnings growth, complemented by relatively sustained earnings of its water and sewerage business.
The Group’s ability to monetise assets and investments to support post-pandemic earnings recovery supports the benefit given to its robust financial flexibility in our assessment. Several asset divestments at a gain of over RM1.6 bil in the past two fiscal years are testament to management’s investment capabilities and value creation. The asset disposals allow capital to be redeployed to new businesses/investments and curtail added leverage risk.
The Group’s liquidity profile stayed superior, backed by the substantial RM6.83 bil of unencumbered cash reserves under YTLPI and a RM742.37 mil company-level cash balance. The ratings also consider YTL Corp’s strong financial flexibility vis-à-vis company-level debt of RM6.60 bil as at end-June 2022. Its estimated net realisable asset value is taken into account in view of the sizeable and increasing value of YTLPI’s regulated assets over time and the Group’s ability to generate cashflows from divestments of stakes in these entities. These factors, along with the Group’s diversified businesses and strong operating track record support the AA1 ratings. Potentially weighing on YTL Corp’s credit profile are the added risks from expansion into new businesses and the capital outlay. While this will be revisited as more details become available, the Group’s proven investment capabilities and risk appetite track record are reassuring from a credit perspective.
Analytical contacts
Karin Koh, CFA
(603) 3385 2508
karin@ram.com.my
Davinder Kaur Gill
(603) 3385 2525
davinder@ram.com.my
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
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