Asia Pacific Equity Research, 17 January 2006
Wessex growing, seeking opportunities in Indonesia, 7% yield
17 January 2006
Price Target: M$2.38
- We think growth in Wessex Water will contribute around 5% earnings growth p.a. to YTL Power?over the next five years. Wessex Water’s regulatory asset base (RAB) is set to grow 26% over the next five years on the back of a GBP 830 million quality improvement programme. As a result of the higher capex, the regulator has granted Wessex Water a 25% tariff increase over the next five years and we think this will drive ROE improvements.
- On the lookout for greenfield projects in Indonesia. YTL Power has bid for a 600MW power plant in Cirebon, West Java. It has targeted equity returns of 20% p.a. (similar to Jawa Power) for new projects with the usual fuel and forex cost pass through elements in the PPA. We think an acquisition will be taken positively by the market, given YTL Power’s good track record in value-enhancing acquisitions. YTL Power has a gross cash hoard of M$4.8 billion to fund acquisitions.
- YTLP has accumulated enough treasury shares to repeat last year’s one for 25 distribution. We think investors can look forward to a total yield of 7% (from cash and share dividends) this FY. We think 13.5x FY06E P/E is undemanding for a company with strong management, good dividends and the capability to do a significant value-enhancing acquisition. Foreign institutional ownership of YTL Power is only 4%. Our 12-month target price of M$2.38/share is based on a fully diluted DCF valuation.
By Joe Liew