Credit Suisse Equity Research Asia Pacific, 6 March 2006
Rating: OUTPERFORM (from NEUTRAL)
Price RM5.10 (3 Mar 06)
Target price (12 months): RM6.90
We are upgrading YTL Corp. to an OUTPERFORM from Neutral, as it has been a major laggard to YTL Power (YTLP MK, RM2.18, UNDERPERFORM, TP RM1.90). Its valuations are looking attractive, relative to its historical trading range and against YTL Power. It is also one of the least expensive big-cap stocks in Malaysia with an average daily liquidity of US$1.8 mn. The Yeoh familyís money is in YTL Corp., which we believe is where investors should align themselves.
? YTL Corp. has been a laggard to YTL Power. Although close to 80% of YTL Corp.ís EBIT is derived from YTL Power, YTL Corp.ís share performance has lagged far behind that of YTL Power. As a result, YTL Corp.ís valuations are now looking attractive. We believe that YTL Corp. will redistribute its treasury shares as a share dividend.
? Back to basics. YTL Corp. is now trading at the bottom of its historical and forward P/E and P/NAV ranges. Its revalued NAV is RM6.76, a 33% premium to its share price.
? A cheaper proxy for YTL Power. As YTL Corp. has been a major laggard to YTL Power, its valuations are far more attractive relative to YTL Power. YTL Corp.ís P/NAV is at a 43% discount to YTL Power.
? An attractive big-cap Malaysian stock. Currently, YTL Corp. has a market cap of US$2.2 bn (with liquidity of US$1.8 mn a day), making it the 17th-largest stock on Bursa Malaysia. It is one of the least expensive big-cap stocks, with a two-year profit CAGR of 11%.
? Upgrade YTL Corp. to OUTPERFORM. YTL Corp.ís target price of RM6.90 implies potential upside of 35%. For more leverage, the warrants (expiring in June 2009) offer gearing of 4.8x and are trading at an implied premium of merely 2%.