FY17 is proving to be a challenging year for YTL Corp’s cement business due to overcapacity and weak demand from the property segment, according to a report by Affin Hwang Investment Bank Research published in the The Edge Financial Daily.
"Although we are expecting a higher demand from infrastructure and property in FY18, we believe the incremental demand is not sufficient to absorb the overcapacity, limiting the upside of the recovery in earnings," Affin Hwang noted.
Apart from the construction job for the Tanjung Jati “A” power plant project (which the research house expects YTL Power to achieve financial close by year end), it believes that YTL could also benefit from rail-related infrastructure projects in Malaysia, given its track record in delivering the Express Rail Link. Affin Hwang expects close to MYR120bn worth of rail-related contracts to be awarded from the second half of 2017 onwards. "However, the upside earnings from these contracts are unlikely to compensate for the weaker results overall, in our view," it adds.
YTL Cement, a subsidiary of YTL Corp, is the second-largest producer in Malaysia. The company operates two integrated plants and two grinding units in the southeast Asia country with a combined cement capacity of around 8Mta.
Total cement capacity in Malaysia (2016: 37.75Mta) far exceeds demand (19.44Mt) and prices have been kept low, driven by competition between suppliers.
