RAM Ratings revises outlook on YTL Corp’s AA1 ratings to positive on strong performance turnaround

RAM Ratings, February 13, 2025

RAM Ratings has revised from stable to positive the outlook on the long-term AA1 issue ratings of YTL Corporation Berhad’s (YTL Corp or the Group) debt/sukuk programmes. Concurrently, we have affirmed the Group’s short-term P1 issue rating.

The outlook revision reflects the steady improvements in the Group’s credit standing due to a strong turnaround across most of its key investee companies, leading to improved earnings diversification and increased leverage headroom. These improvements were primarily driven by the stellar performance of its Singapore power generation business, cement segment, hotels and real estate investment trusts particularly in the last 18 months on the back of a more favourable operating landscape. The Group is now reaping the benefits of past strategic investments; YTL Corp’s operating profit before depreciation, interest and tax grew 2.5 times in the past five years, rising 36% to hit a new high of RM8.12 bil in FY June 2024, while core pre-tax profit, which excludes any one-off exceptional gains and/or losses, was about 71% higher.

As both YTL Corp and its 54.84%-held utility arm, YTL Power International Berhad (YTLPI), are investment holding companies, they rely on the returns of investee companies – either through operating cashflows, dividends or capital appreciation from divestments – to support their ongoing operations and debt obligations. Operating cashflow to net debt coverage, a measure of the combined company-level debt coverage levels of YTL Corp and YTLPI, was 3 times in fiscal year 2024 (end-June) and is expected to be commensurate with an AAA rating in the coming years. Combined company-level dividend income is projected to be strong at RM1.2 bil-RM2.5 bil per annum from fiscal years 2025 to 2029. 

To that end, YTL Corp’s sturdy track record in long-term regulated concession businesses (infrastructure and utilities as core assets), superior liquidity position and strong financial flexibility complement its favourable business profile, providing it with robust financial buffers and leverage headroom. As at end-June 2024, the Group, through YTLPI, had RM9 bil of unencumbered cash reserves (with another RM894 mil at YTL Corp) while its net realisable asset value (valued net of liabilities), which is reflective of the equity value of its assets, is estimated at around RM53 bil. YTL Corp’s significant asset holdings can be used to reduce company-level debts, if necessary.

RAM will reassess the rating for a possible upgrade if the Group can demonstrate longer-term traction in maintaining its current performance improvements and earnings trajectory, whilst navigating the ongoing regulatory uncertainties and risks from expansion into new businesses. Regulatory changes and industry challenges have weighed on the earnings of some business segments including its UK-based water and sewerage operations under Wessex Water Services Ltd (Wessex). Uncertainties remain over Wessex’s performance under the next regulatory period, which is set to commence in April 2025, particularly as the regulator’s final decision on Wessex’s tariffs and allowed return are lower than Wessex’s proposals. On a lighter note, following the resolution of past issues that affected Singapore’s power sector and the profitability of players, the operating landscape is seen to be conducive over the next few years owing to strong demand and coordinated plant-ups under the Singapore regulator.

YTL Corp’s expansion into digital businesses and renewable energy, including the solar-powered data center and digital bank segments, is aimed at alleviating asset and earnings concentration risks over the long term. Looking ahead, diversification into these new businesses entails execution risks, which are nonetheless balanced by the Group’s proven investment capabilities and track record.