Analysts' Recommendation

Power Boost

Morning Call, 1 June 2004

YTL Power (RM3.56) – Upgrade to BUY

Moving to Indonesia. YTL Power has entered into a Share Sale and Purchase Agreement with P.T. Bumipertiwi Tatapradipta (PT Bumipertiwi) to acquire from PT Bumipertiwi a 35% equity and certain loan stock interests in P.T. Jawa Power for USD139.3m (=RM529.7m). Jawa Power owns a 1,220MW coal-fired power plant, which began commercial operation in November 2000. The plant is located at the Paiton Power Generation Complex in the district of Probolinggo, Java.

Jawa Power is currently 50% owned by Jawa Power Holding GmbH, a wholly owned subsidiary of Siemens AG and 15% by PT Bumipertiwi. The remaining 35% interest in Jawa Power is owned by Ergon Energy Limited, a wholly owned subsidiary of Powergen UK PLC. PT Bumipertiwi will purchase this 35% interest in Jawa Power from Ergon Energy and one-sell the entire interest to YTL Power.

Jawa Power is the second largest operational IPP in Indonesia. Under the terms of the Power Purchase Agreement (PPA), P.T. Perusahaan Listrik Negara (PLN) is the off-taker for the entire generation capacity and electricity produced by Jawa Power. PLN’s obligations under the PPA are supported by the Government of Indonesia, which has issued a support letter to Jawa Power confirming that it will cause PLN to honour its obligations under the PPA. PLN’s customer base comprises approximately 29.8 million households, businesses and industrial clients. This exercise is expected to be completed by 2H04.

Comments: The acquisition will enable YTL Power to develop and expand its presence in utility businesses worldwide, particularly in the rapidly developing ASEAN market. YTL Power will have an income-generating assets and access to the region. Based on Jawa Power’s FY02 PBT of USD153.4m (=RM583.3m), the acquisition would add 20.9% to YTL Power’s FY05 EPS to 37.1sen. This would be conservative by any means. The stock is trading at PER05 of 9.6x. This acquisition gives a 30% enhancement to our DCH valuation to RM4.70 per share. Upgrade to BUY (Hi-Low: RM3.64-RM2.97, FV=RM4.70)

Maybank Securities
Malaysia Equity Research