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Affin Securities: Upgrade YTL Corp to BUY; target price RM7.25

Affin Securities, 13 November 2006

World class re-rating on the way

Salient features and Recommendation
? Potential award of 2 contracts worth RM1.6bn. Also, the RM10bn high-speed bullet train rail link from KL to Singapore very likely to be in the bag.

? Regulated assets remain the crown jewels of the conglomerate with Wessex Water attracting offers at prices with a 30% premium above the market EV/RCV of 1.5x.

? UK water regulator, Ofwat ranked Wessex as the top water and sewerage company for operational performance and customer service.

? May clinch a 800MW power plant near PT Jawa coal-fired plant, in which YTL already has a 35% stake. Also looking at increasing stake in PT Jawa by acquiring Siemenís 50% stake.

? The groupís world class intellectual capital secured from the leading position enjoyed by most of YTLís industries provides the group the edge in securing new assets and projects.

? Doubled dividend forecasts. The surprise interim dividends in 1Q FY07 is expected to be group dividend policy. As annual gross dividend is expected to be at least 15 sen going forward, we have doubled our dividend forecasts for FY08-FY09.

? Maintain our BUY call. We view this stock as unjustifiably undervalued which has a 5-year historical 1-year forward average P/E of only 11.2x compared to average KLCIís P/E of 16x. We believe the group's status as a global utilities player with a recurring earnings profile and huge cash pile should instead to be accorded premium valuations. We upgrade our target price to RM7.25, pegged to a CY07 P/E of 15x and a 10% discount to our upgraded RNAV of RM8.00, which offers a good potential upside of 24%.

By Alex Goh






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