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The Three Numbers That Define YTL Corporation Berhad

There are no shortages of conglomerates in Malaysia. And YTL Corporation Berhad (KLSE: YTL; KLSE: 4677.KL) is a good example of one of the many Malaysian behemoths that has its fingers in a number of industrial pies.

Founded over 60 years ago as a small construction firm, YLT has grown into a multinational business with interests in power generation through YLT Power International (KLSE: YLTPOWR; KLSE: 6742.KL); in property through YTL Land and Development (KLSE: YTLPROPERTY; KLSE: 2577.KL) and in construction materials through YTL Cement, to name just three. It also owns utility company, Wessex Water, in the UK.

Despite its size, and obvious benefits through internal diversification, YTL Corporation is not especially productive. Its Return on Equity (RoE) was a pedestrian 5.1% last year. It means that the company only generated MYR5.10 on every 100 ringgits invested in the business by shareholders. That is about half returns generated by the 30 companies that make up the Kuala Lumpur Composite Index (KLSE: ^KLCI).

In that regard, YTL is not that unusual. Peers Sime Darby (KLSE: SIME.KL; KLSE: 4197.KL) only managed a RoE of 8%, while IOI Corp. (KLSE: IOICORP; KLSE: 1961.KL) eked out a RoE of just 3% last year.

YTL Corporation delivered a Net Income Margin of 6.1% in 2015. It implies that the company made a bottom-line profit of MYR6.10 on every MYR100 of top-line sales. That is considerably lower than the median Net Income Margin for the Malaysian market of 20%.

YTL is not especially efficient in the use of its assets too. It only generated MYR26 of sales on every MYR100 of assets at its disposal. Its Asset Turnover of 0.26 is about 25% lower than the Malaysian market.

The company makes use of debt. Almost three quarters of its Total Liabilities of MYR45.9 billion was made up of long-term loans of MYR33 billion. YTL had Total Assets of MYR66.7 billion, which implies a Leverage Ratio of 3.2.

By deconstructing the Return on Equity of YTL Corporation, it is easy to see how it is defined. Its RoE of 5.1% is the product of a low Net Income Margin of 6.1%; an unremarkable Asset Turnover of 0.26 and a lofty Leverage Ratio of 3.2.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore Director David Kuo doesn’t own shares in any companies mentioned.