Analysts' Recommendation

Kim Eng: YTL Power BUY

Kim Eng Research, 23 May 2003

YTL Power International Berhad

By Yew Chee Yoon and the Research Team

Power & Gas
3Q03 Results
KLCI Index – 642
Price $2.92
DCF fair value – $2.72
Premium to FV – 7%

Results were marginally below expectations due to weakness in its overseas operations. Turnover, pretax and net profit show strong growth of 126%, 22% and 31% respectively for the 9-month period, due primarily to the consolidation of results of Wessex Water Ltd (WWL), which became a subsidiary in 4Q02. WWL added turnover of $1.3bn and pretax profit of $167m in the 9-month period. On a quarterly basis, WWL’s contributions were sliding over the last 3 quarters from $67m in the 1Q to $45m in the 3Q, as a result of lower sales of water and sewage services. The power generation business too showed a slight dip in profits in the 3Q, on the back of lower sales of electricity to Tenaga Nasional Berhad.

We have reduced our basic FY2003 EPS projections by 3% to 25sen from 26sen. YTLPI is still slated to enjoy an above average growth of 17% in net profits this year, with WWL making a 12-month contribution versus a mere 1-month in FY2002. Growth should rapidly revert to single-digit level from FY2004.

YTLPI did not declare any interim dividend for the current quarter and for the financial year to date, as per previously.

Share price has inched up 4% over the last 3 months, helped by expectations of at least a similar final dividend as the end of the FY2003 approaches. Assuming that YTLPI would declare a similar quantum of dividend of 20 sen, the gross yield on YTLPI would be an attractive 6.8%. Besides this attraction, YTLPI’s valuations are still very decent, with PERs of 11x and at a very slight premium to our DCF value.