OSK Malaysia Equity, Friday, November 25, 2005
YTL POWER INTL
Betting on Another Share Distribution
Below consensus estimates. In annualised terms, YTL Power’s 1QFY06 results were 11% short of market expectation of RM855.2m. It was however, within our forecast of RM792.1m. The shortfall largely came from lower associates’ contribution, namely YTL Jawa, which contribute only RM36.6m to YTL Power’s PBT. In the 4QFY05, associates’ contribution was RM90.5m. Hence, there was a sharp decline on q-o-q basis. Wessex Water continued to deliver impressive performance with PBT rising 17.3% y-o-y. Wessex Water is now the largest contributor to YTL Power’s profits.
FY06 to see full contribution from YTL Jawa. FY06 will be the first full financial year to benefit from the 35% stake in YTL Jawa (formerly known as PT Jawa). Contribution from this Indon venture was partly responsible for YTL Power’s 13.0% y-o-y earnings growth. To recap, the acquisition of 35% stake in YTL Jawa was completed in end 2004.
Maintaining BUY call. Despite the upside of just 7.7% to our target price of RM2.39, we are maintaining our Buy call given its locked-in earnings from its PPA with Tenaga Nasional. In terms of PER, YTL Power is trading at an undemanding 12.9x and 12.5x based on FY06 and FY07 earnings.
Catalysts which could propel the stock higher include:
- potential ventures overseas. YTL Power is a proven name, particularly from its acquisition of a UK-based utility, which will help its bid for other regulated assets.
- treasury share distribution. The company now holds 193.7m treasury shares. Another distribution of treasury shares such as the 1-for-25 in February this year could be repeated. Note that YTL Power was holding 225.5m treasury shares just before it announced the share distribution. We believe a share distribution is more beneficial to shareholders compared to a cash dividend as it is tax-free.
By Alvin Tai