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CSFB: YTL Corp OUTPERFORM

Asian Daily (CSFB), 27 August 2004

By Tan Ting Min

Maintain OUTPERFORM

FY04 results boosted by exceptionals; cheaper proxy into YTL Power.

YTL Corp.’s FY04 net profits were in line with CSFB expectations.

The reported profit figures have been completely distorted by the adoption of a new accounting policy, MASB 29, relating to “employee benefits.”

Stripping out the exceptional gains of RM112 mn from the placement of YTL Power shares and the impact of MASB 29, FY04 net profits were up 20% YoY.

We are revising up FY06 net profits by 11% from RM610 mn to RM678mn, as we expect a higher profit contribution from YTL Power (YTLP.KL, RM 1.67, UNDERPERFORM, TP RM 1.73).

We are maintaining our OUTPERFORM rating on YTL Corp., as it is a cheaper proxy into YTL Power based on EV/EBITDA and P/NAV basis, (2) YTL Corp. has other engines of growth i.e., property development and the cement divisions, which should benefit from Malaysia’s robust economy, and (3) YTL Corp. offers a higher beta than YTL Power.

YTL Corp.’s FY2004 results review

YTL Corp.’s FY04 net profits were in-line with CSFB expectations.

The reported profit figures have been completely skewed by the adoption of a new accounting policy, MASB 29, relating to “employee benefits.” YTL Corp. has adjusted its FY03 net profits downward by writing off RM157.2mn from RM511.7mn to RM354.6mn.

Stripping out the exceptional gains of RM112mn from the placement of YTL Power shares and the impact of MASB 29, FY04 net profits were up 20% YoY.

Sector analysis

An estimated 61% of YTL Corp.’s FY04 profits (excluding exceptionals) were derived from YTL Power.

YTL Corp.’s construction profits fell 59% yoy, but this is insignificant to the group. It relies mostly on in-house property contracts.

Profits from the property, management, and hotel division jumped 48% YoY. YTL Corp., through YTL Land and Development (YTLL.KL, RM1.08, Not Rated), has been aggressively launching new properties to ride on the current robust property demand. We expect YTL Land to continue to be active in FY05 and FY06.

Rating and target price

We are maintaining our OUTPERFORM rating on YTL Corp., as it is a cheaper proxy into YTL Power based on EV/EBITDA and P/NAV basis, (2) YTL Corp. has other engines of growth, i.e., property development and the cement divisions, which should benefit from Malaysia’s robust economy, and (3) YTL Corp offers a higher beta compared to YTL Power.

We are revising up FY06 net profits by 11%, as we expect a higher profit contribution from YTL Power. Our target price of RM5.90 is based on a “blue-sky” approach, as we have assumed that YTL Corp. can achieve its historical or market valuation P/E averages.





Click the following link(s) for details:
YTL Corp 20040827 CSFB.pdf

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