Analysts' Recommendation

YTL Corp: Setting the standard

ABN AMRO Malaysia Research, 31 January 2001

YTL Corporation
Maintained BUY
Target Price: RM7.00

  • YTL Corp offers all the excitement of Malaysian infrastructure without the associated political risks. Our RM7 per share fair value is based on existing fundamentals, which show an earnings CAGR of 23% over the next four years.
  • YTL Power’s new deal with Tenaga signals a new favourable working relationship, which should at last unlock its growth potential.
  • The soon-to-be-completed high-speed rail link to the airport will ring in a new stream of utility-based earnings to balance out the cyclical businesses which are themselves undergoing a strong revival.
  • The company’s Internet strategy recognises the strength of the YTL brand name and maximises the value of its property and leisure assets.

SUMMARY: Setting the standard

YTL is the only remaining bastion of Malaysian infrastructure. The sector has been so shell-shocked by failed privatisations, corporate governance abuses and debt restructuring problems that YTL is arguably the only heavyweight company lefty that can offer clean and able exposure to the exciting prospects in Malaysian infrastructure development. We have an immediate target price of RM7.00 per share offering 40% upside based on existing fundamentals without factoring in any of its potential and the company should yield an earnings CAGR of 23% over the next four years. Growth will be driven by the simultaneous rejuvenation of all its cyclical business of construction, cement and property while the defensive power-related earnings will continue to be the platform of support.

Latent expansion in YTL Power to finally awaken. The IPP has forged a good relationship with new management at Tenaga as seen in the latest deal to supply an additional 20% of its capacity. After years of suppressed expansion potential this should open the way for new plant-up projects. YTL Power is in the best position to meet the country’s current shortage of capacity with the fast track ability of adding additional blocks to its existing plants. Meanwhile, overseas, its international strategy has been significantly re-rated by taking strategic stakes in attractive assets rather than undertaking large, risky IPP initiative in developing countries. The latest investment in south Australia’s ElectraNet and its alliance with CLP builds a quality profile.

The Express Rail Link (ERL) is underrated. The early completion of the ERL will allow the market to appreciate how integral the high-speed service will be as a commuter train to the international airport. We estimate an IRR of 18% based on the construction cost of only RM30m per km, the concession period of 60 years, an autonomous fare structure and ridership of only 35% of the air passenger traffic, despite potentially overwhelming demand due to the lack of efficient alternatives. The project will bring another lucrative stream of utility-based earnings adding weight to the growth momentum of the group.

Internet strategy to maximise value of property and leisure assets. Investors should not be wary of the continued enthusiasm for the new economy. There are few costs involve and there are significant rewards to be gained from leveraging the YTL brand name and recognising a customer base of 4m from its first-class leisure and hospitality assets.

YTL is the only remaining Malaysian infrastructure story

UEM is all but dead, Gamuda is saturated and has deviated into tech

YTL’s peers are falling by the wayside. Regardless of whether investors have faith in the YTL Corp (YTL) story, they cannot ignore that it is now the only real infrastructure story left in Malaysia. Its two biggest competitors are either falling by the wayside or losing focus. UEM, once the darling of all investors, has imploded with debt and from its relationship with Renong. Gamuda, although still a respectable player, is unlikely to take on more work since it is facing a saturation of projects and has chosen instead to diversify into cellular phone battery manufacturing.

It has remained steadfast in corporate governance. YTL’s position of default deserves some recognition because it highlights that throughout the 1997-1999 crisis followed by the temptation of the recovery and the new economy nonsense, the group has remained focused and steadfast in corporate governance (it still has all of its RM4bn in cash). During this period of adversity YTL pursued measured progress, mainly focusing on buying distressed property (the restructuring of Taiping Consolidated) a sector which offers the best opportunities in any recession. As for privatisation, it only concerned itself with rejuvenating the Express Rail Link (ERL) to the airport at the right time and on the right terms. To keep up with the new economy, it did launch an Internet strategy but this was to enhance its existing operations, principally to boost the profile of its property and leisure business where YTL is now almost a Malaysian household name.

Valuations do not fully reflect its virtuous qualities. The market to some extent has differentiated YTL from the vices of its peers but we believe YTL valuations have yet to be fully reflected in the share price in the light of the company’s robust earring, strong corporate governance and management credibility, all well illustrated by the ABN Real Risk Analysis index. We believe YTL should trade closer to the likes of Malayan Cement than be unfairly discredited for being in a disreputable sector. This is its greatest appeal – it offers exposure to all the robust characteristics of Malaysian infrastructure without the ugliness of weak management and the issues of corporate governance.

YTL should benefit from pump priming and a more politically transparent environment

YTL offers all the excitement of infrastructure without the risks. Infrastructure development will arguably be one of the best areas of growth despite the slowing economy. It continues to be the government’s main vehicle in pump priming especially since the country is still short of power, powers, water, schools and hospitals. The sector has received one of the largest allocations of the RM91bn 2001 budget at 5.1% and although details of the eight Malaysia plan have not been released yet, the momentum of spending is expected to continue for some time, especially since many of the projects defined in the seventh Malaysia plan have been deferred or shelved. These deferred privatisation projects and the inability of the concessionaire to carry them out, will offer another avenue of growth by grabbing privatisation market share.

The changing political landscape will be good for its prospects as an efficient player. With its track record and strong balance sheet to secure comfortable and cheap financing, YTL should benefit from this rich top down environment. More importantly we believe the changing political landscape will work in its favour which is ironic since YTL has invariably been accused of thriving on political goodwill. The truth of the matter is that YTL has been largely sidelined by the government since the crisis and that its merits and track record have meant little in the distribution of largesse. Indeed, the abuse of the system has reached such an intensity that not only is the opposition calling for greater transparency and accountability but, more notably, similar calls are coming from within UMNO itself. Igniting the controversy is, of course  the recent MAS buy-back and the LRT buyout. However, more indignation has been stirred by the recent award of federal road maintenance contracts or the RM1.2bn National Exhibition and Convention Centre to little known construction units related to certain personalities.

YTL does not abuse its privatisation privilege. The workings of the political system have therefore in reality been a hurdle rather than a boon to YTL’s prospects. We do not have to look too far to illustrate this. Renong’s Kuala Lumpur Light Rail Transit (LRT) system cost RM190m per km to build while YTL is constructing the Express Rail Link to the international airport at RM30m per km. Even taking into account the fact that the LRT has a lot more stations, there still must have been huge inefficient inflationary cost pressures. Costing a total RM6bn, it was not surprising the project was not viable from the beginning and the recent government buyout at the same RM6bn could have easily been avoided if it had been handled more appropriately.

YTL has delivered to shareholders, the government and the country. The big difference here is that if YTL is given a concession, it does not rape the privilege by creaming the construction profits or sub-contract work out for the benefit of privately-held companies. Indeed it structured Malaysia Inc’s first successful privatisation template by negotiating long-term concessions, reinvesting the construction profits into equity, sourcing Ringgit bond-based debt, and defining sustainable cashflows to build a strong balance sheet. This formula will consistently ensure the best deal for shareholders, banks, the government and consumers. For YTL shareholders, turnkey construction profits have always remained within the group, followed by squeezing the best IRR out of the concession when it is completed by keeping the building costs low. The best case in point is the Paka power station which was built in a world record time of 22 months, bringing cashflows in earlier than expected, and as for Tenaga and the country, helping solve the 1992/1993 power shortage crisis as fast as possible. This feat is now being repeated with the ERL which will be completed at the end of this year almost six months ahead of schedule. Not only will this boost earnings for shareholders and bring in earlier than expected operating revenues, it will be appreciated by air passengers who badly need a fast link to the airport.

The eighth Malaysia Plan could offer significant opportunities. Whether YTL curries political favour is not the issue but the fact of the matter is that it truly represents what was supposed to be the success of privatisation in Malaysia which has unfortunately been polluted by the likes of the UEM-Renong, MAS and Bakun episodes. In any job it takes on whether sourced independently or given, whether it is building a power plant or rejuvenating a flagging retail district, it has never failed to deliver for shareholders, the government or the public. Our argument therefore is that as the political environment is forced to become more transparent and the checks and balances of a healthy two-party system emerge, the company that can show the best results should have a better chance to thrive regardless of its political allegiance and which administration is in power. We believe the eighth Malaysia Plan will bring precisely this period of maturity and an opportunity for YTL to move onto its next stage of growth.

Sustained four-year earnings CAGR of 23% – initial target price of RM7.00 per share

Investors do not have to bet on future prospects, just on existing fundamentals. The next level of in YTL’ s evolution may be beckoning but investors do not have to wait to believe in the story before taking a serious look at the company. Without factoring in any future opportunities, the company already has enough on paper to generate momentum for an earnings CAGR of 23% over the next four years which, against a background of a slowing economy, is compelling. The main driver of growth will be the expansion of the non-power businesses after a period of hibernation during the crisis. YTL Power used to represent as much as 80% of net earnings of the group but we expect this to drop to as much 49% by FY03.

Cyclical businesses will drive growth. Initial earnings growth of 19% this year will be driven mainly by the early completion of the ERL project where 75% of the RM2.2bn contract will be booked in as YTL’s portion of turnkey construction revenue between FY99 and FY02. We have assumed that the bulk of the work, around RM1bn will booked in this financial year in 06/01 yielding a 10% margin with RM500m remaining for FY06/02. Once completed, equity accounting for its 40% stake in the ERL may not be as spectacular as the construction profits but earnings contribution will grow strongly starting from RM9m in FY06/02, to as much as RM72m by FY06/05.

YTL Cement to leverage on in-house and external demand. Property and cement will initially play lesser roles to YTL’s growth this year but their performance going forward is promising coming from a low base. YTL Cement will particularly benefit from the multiplier effect of the ERL where in-house demand from construction can represent as much as 70% of its volume sales. However, future growth will come externally where its plants are strategically located near massive infrastructure projects, namely the East Coast Highway. Transport cost is one of the single biggest factors in the supply of cement and YTL Cement, already one of the most efficient producers in the sector will be positioned very competitively,

Property division to book in overwhelming demand of medium cost housing. As for property, the overwhelming take up of its joint-venture medium and low cost residential developments in Puchong, Ipoh and Johore Bahru totalling 2,782 units will continue to be booked in. As for supporting rental income RM77m will come from Bintang Walk which has been transformed into a thriving prime retail district. The ROI of the RM403m investment (including refurbishment costs) is expected to be in the range of 19% given that area is fully occupied and the property was bought for 20% below replacement value.

Sentul Raya project the medium term motivator. After the 19% earnings growth for the overall group this year, the momentum will not only continue but is expected to accelerate. The main driver for the longer-term will be property, where the Sentul Raya project will bring in an estimated RM8bn in sales over the next seven years. The projected sales should be achievable since the commercial segment will be re-designated into more appropriate lower cost products where there is prevailing demand. There should also be little concern on the high-end residential units as they were already taken up when the project was first launched under the previous owner. Confidence in the RM8bn sales figure for Sentul Raya will be significant because the company – Taiping Consolidated (which will be renamed) is debt free and has no land holding cost. YTL can expect gross margins as high as 60% which means that pre-tax profitability in that seven-year period will average RM428m a year – almost as high as the contribution from YTL Power.

In house construction division to benefit from resurging activity throughout the group. It could be argued that this pre-tax contribution will be diluted at the bottom line since all the activity will take place in 51%-owned Taiping Consolidated. However, the significance of Sentul Raya is not just in its individual contribution, but like the ERL, its multiplier effects to the group is expected to be substantial. Construction and cement obviously stand out as prime beneficiaries and we expect a contribution of at least RM3.5bn to the group revenue line spread over the seven years with around RM625m in pre-tax profit.

Non-power valuations should be at a peak not at the trough. Against this backdrop of across-the-board growth are the valuations, which on an historical basis, have rarely been this reasonable. We illustrate this by looking at the trading movement of its non-power multiples, whether it is price-to-book or PER, and we find that is at the low-end of the range. This should not be the case since non-power earnings are all in a period of expansion and valuations should in fact be at a peak of 30X – the level non-power earnings are forecast to grow to. If we value YTL stock according to the future growth of non-power earnings, YTL shares are worth RM7.00 each, which is the basis for our target price. This is backed by the group’s mark-to-market RNAV value of RM6.80 per share.

Confidence in growth reinforced by share buy-backs

Share buy-backs to be returned as special dividends to shareholders. Management is showing unbridled confidence in the group’s growth going forward. Aggressive share buy backs have been carried out in all three listed YTL companies – YTL Corp, YTL Power and YTL Cement. Investors may have an issue with this but we feel they should be even more encouraged by this clear indication that the shares in all three companies are undervalued. The biggest case in point is YTL Cement, which is trading at 4X FY0l earnings. The shares bought and held in treasury are likely to be given out as a special dividend in specie to shareholders along with the usual cash dividend at the end of the year.

Total dividend yield could be 6%. This special dividend is a way to leverage on cash, i.e. by buying the shares at low depressed prices and then giving them out will allow shareholders to realise significant gains when the respective companies achieve their true value or full potential. Looking at the average prices of the buy backs to date, shareholders already stand to make a gain if the shares were dividend out at current market prices. If all the treasury shares were given out and assuming that YTL Corp continues with its 5 sen per share cash dividend, the overall dividend yield is expected to be 6%.

YTL Power is poised for significant expansion

Positive newsflow is finally materialising at YTL Power. We have talked much about YTL’s non-power businesses and how they will be the centre of growth for the group going forward. However, this does not mean that prospects in the power division are dead. On the contrary, YTL Power (YTLP) will remain the solid foundation of earnings for the group and at the same time have just as much excitement as the other businesses going forward. Although YTL Power has been sidelined in much of the industry restructuring that has taken place so far, this is slowly changing judging by the positive newsflow starting to take place.

Latest deal with Tenaga heralds a new working relationship with the utility

Tenaga will no longer restrict potential. Its been no secret that the relationship between YTL and Tenaga has been strained right from when the YTLP power purchase agreement (PPA) was signed and tried even further when Tenaga was desperate to renegotiate the agreements during the crisis. If YTL was not adamant in protecting the sanctity of IPP agreements, privatisation in Malaysia would have regressed, let alone progress of the power industry. Tenaga had no case for a force majure in demanding a reprieve because its underlying problem in the crisis was its foreign debt and not the stranded costs associated with the IPPs.

YTL Power has been sidelined for a long time. It is therefore no surprise that YTL  Power (YTLP) did not receive a single concession from Tenaga in its post-crisis restructuring and capacity development efforts with such a shaky background to their relationship. Most of the asset sales and the award of new plants to date have gone to either Malakoff or Powertek when YTLP had by far the strongest balance sheet. What was an even greater snub was that while Tenaga was awarding new contracts to other IPPs in the face of a rapidly falling reserve margin, YTL Power had 30% of its capacity lying idle, not used in its PPA (all other IPPs lease out all their available power to Tenaga in their original PPAs while YTL Power is the only IPP that just sells 70%).

New deal hints of bigger things to come. Tenaga finally got round to securing the use of YTLP’s excess capacity in 2001 and only after the recent change in management. Tenaga has agreed to buy 20% or 1400Gwh of YLTP’s excess capacity at 10.9 sen per kWh for the next three years. This translates to an extra RM150m a year in revenue and an additional RM40m to YTLP’s bottom line. The impact was a 10% upgrade to our forecasts for the power subsidiary and an increase in our DCF value from RM3.15 to RM3.28 per YTLP share. We believe this is a good deal for YTLP since the other IPPs have to sell their excess capacity at 8 sen per kWh for their entire 21 years in operation. At 8 sen these IPPs are effectively selling their excess energy at cost while at 10.9 sen, YTLP’s EBITDA margin is 45%. The temporary nature of the three-year deal is also positive because it allows YTLP the flexibility to renegotiate or sell the excess power to anyone later on at a higher price.

The significance of this latest deal is not so much in the earnings improvement, but in the fact that it symbolises a new working relationship with Tenaga and hints at much larger deals to come. It will be no coincidence that with the change in management at Tenaga, YTLP will start to finally realise its true potential after a long hiatus. With new personalities running the utility, there should not be the history of bad blood clouding any rational progress in the power sector.

YTL Power has the balance sheet to build the country’s capacity, Tenaga doesn’t

Tenaga cannot take on responsibility for new capacity if it does not restructure. YTLP’s greatest potential lies in its ability to take over the development of new capacity for the country. Tenaga has been disturbed by the possible impact of deregulation following the Californian power crisis and has frozen its asset sale programme as well as its plans for power pooling. This is all very well, but it throws into question of how the utility will resolve its debt problems which now stands at RM27bn, a net gearing of 173%. It should be able to roll over and refinance its large bullet bond repayments and manage to service its debt load at current levels but the key issue is that it cannot afford to let the debt burden grow any larger. This will be a hard task if its budget is to spend RM5.5bn a year for the next three years and, even with a tariff increase, pressure will be on free cash flows to stay negative.

YTLP has strong cash flow and balance sheet to take on responsibility. We therefore believe Tenaga will have to hand over the task of building new capacity almost entirely to the private sector because, quite simply, it cannot afford to build new power plants without selling its existing ones. It has already awarded about half the country’s future capacity needs of more than 6,000MW to new and existing IPPs. We believe YTLP is in a good position to not only receive new plant ups but perhaps also take over stalled projects if the terms are favourable.

YTLP can expand existing plants as fast as possible. YTLP’s undeniable position in future capacity comes from three compelling arguments: 1) the improvement in its relationship with Tenaga, 2) a balance sheet that contains RM4bn in cash and 3) the available land and facilities at its existing two power plants which could easily be doubled in size at low cost in a short space of time. The third point is particularly interesting because there is a total vacuum of new capacity coming on stream this year which means that if power demand growth continues at a pace of above 10% per annum, the reserve margin for the Peninsula will fall to below 20%, a level not seen since the blackouts of 1992. Tenaga would therefore ironically be hoping that the economy slows down significantly this year or it will be facing a power crisis. It may not likely make this bet and would be looking closely at the options YTLP can provide.

Expansion activity in YTL Power will have significant immediate impact to YTL Corp first

Any expansion will boost construction earnings first and then create value at YTLP. The likely award of plant up concessions to YI’LP will have an immediate positive impact directly at the YTL Corp level from the construction work involved. We can therefore expect to see clear continuity of construction work as the ERL project comes to an end and when the Sentul Raya development gains full momentum. If we assume that Tenaga allows YTLP to double the capacity of both its existing plants, based on the cost of RM2.5m per MW, the construction division could earn another RM250m between FY02 and FY03 leading to a 20% upgrade to our numbers. As for the impact on YTLP, the value created will be seen in the DCF where, if we attach the benchmark IRR of 12% to the potential doubling of capacity, it would increase our DCF fair value of the power unit from RM3.28 to RM4.80.

Investment in Australia and relationship with CLP is a re-rating of international strategy

Australia is a re-rating of its international strategy. YTLP’s foray into Australia can be open to misinterpretation and many see it as deviation from the focus on opportunities at home. YTLP’s international strategy was never a compromise to the lack of growth locally as its foreign presence was always intended to be part of the IPP’s culture. Investors will recall that when it was listed, the two largest prospects came from China and Zimbabwe. (Fortunately, these are no longer prospects.) The investment in Australia is also a unique opportunity to gain valuable knowledge and to stay well versed in the global trend of de-regulation.

Has locked in an IRR of 12-13%. Australia is therefore a vast improvement to YTLP’s original international strategy of gambling on developing markets. The latest 33% stake in South Australia’s privatised transmission company, ElectraNet, is a safe yet extremely attractive investment. The concession to run the assets are for 200 years and technically yields an IRR of 7%. However in YTLP’s case, the IRR has improved to 12-13% as it bought its stake at a 31 % discount to the A$1.9bn original EV value of the assets (A$54m in cash for A$1.3bn total EV) and when the Australian dollar was at a low (the Australian dollar has appreciated by 10% since the purchase).

Joining forces rather than competing with CLP is a good move. The move into Australia is by no means a signal that YTLP has given up looking at emerging international markets, especially in Asia. The interest is still there but the company is prudently pursuing a more indirect role by striking an alliance with China Light & Power. CP, through CLP International (CLPI) has arguably the largest regional portfolio in the Asian energy scene, which includes a 5% stake in YTLP. In return for allowing access into the protected Malaysian market, we believe CLP may allow YTL to have some strategic exposure to its Asian investments. This visible relationship is extremely appealing because, instead of competing with juggernauts like CLP in Asia, having immediate, indirect exposure to their experience and progress is a much wiser move.

The Express Rail link is an underrated gem

The project has an IRR of 18%

The ERL is a great concession. The market does not realise the true significance of the ERL project. One only has to look at the terms of the concession to see how lucrative it will be. The concession period is for 60 years – one of the longest privatisation periods awarded in Malaysia and with a total cost of RM2.2bn it is one of the cheapest high speed rail links ever built at RM30m per km (Hong Kong’s airport express needed RM450m per km – generating an IRR of 1.6%). Locking in the purchase of rolling stock at low Deutsche mark rates and time saved in the early completion of the project drives this cost down even further. To top it off, the government has provided RM700m or 40% of the debt portion of the project as a soft loan and allowed for an autonomous fare structure.

Strong passenger loads expected. With such attractive concession terms, the only key variable of the success of the project is the revenue line and this will simply be the question of passenger loads. Not much scrutiny is needed to judge how popular the rail link will be. The KLIA is located almost an hour away from the capital and commuters to and from the airport currently have to bear with a very poor taxi service which costs RM80 or a long bus or car journey that costs RM30 and RM14 (for toll exclusive of petrol) respectively. The distance and the expensive access to the airport is still a popular gripe among most Malaysians and probably also to most foreigners even after two years of enduring the inconvenience.

Profitability will beat all expectations. The ERL, with a travelling time of 30 minutes, pre check-in facilities and at an estimated price of RM40-50 per journey will offer much welcome relief. Presumably, many of the 15m passengers using the KLIA each year will use the service but for our assumptions we have taken the example from Hong Kong’s Airport Express where 35% of the airport’s passengers use the rail link. Basing this portion on the projected number of passengers handled by the KLIA to reach our revenue stream, we come up with an IRR of 18% for the ERL or a DCF value of RM2.28 per YTL share, for its 40% stake.

Yet another lucrative stream of utility earnings increasing the defensive platform for growth

Contribution at the P&L small at first but will double every year until FY04. The underlying value of the ERL is not just hidden in the DCF but will be apparent at the P&L as well. With the concession period of 60 years and the support of the government soft loan, depreciation and interest charges are going to be quite low. The leverage in earnings to increases in ridership and ticket prices will therefore be high and with the initial tax breaks, the contribution from YTL’ s 40% stake is expected to double every year for the first three years. By FY05, net earnings contribution should reach RM72m, which although modest, is enough to be a new established pillar of utility earnings, complementing YTL Power.

Another pillar of utility earnings. When this happens YTL Corp’s earnings profile will be redistributed evenly again between cyclical and defensive. It is easy to see a powerful trend emerging where YTL Corp’s evolution as an infrastructure company is driven by this constant process of adding on new utility-based businesses and then letting the layer of cyclical earnings keep the momentum flowing it until the next privatisation project kicks in.

Unique exposure to commuter rail transport

YTL will be the only company in Malaysia to offer exposure to ERL. The only listed company and owning the largest stake in the ERL, YTL Corp will offer investors unique exposure to a highly profitable commuter service. Exposure to this kind of business is much sought after judging by the strong performance of Hong Kong’s MTR share price since its IPO and the valuations of other network rail operators around the world which trade on a par with or at a premium to other Asian utilities. Although the size and profile of the ERL is much smaller than its peers, the attractive underlying characteristics as a dependable play on tourist arrivals and economic growth are the same and it is arguably a much cleaner and better alternative than exposure to Malaysia Airports Berhad.

Option to extend to Singapore will always be there

Politics do not look good but the intention is there… Cooperation between Malaysia and Singapore on anything seems unlikely at this point but the fact that the authorities and management of the ERL has clearly stated the possibility of extending the link to the republic is a step in the right direction. Another hurdle is, of course, the Renong group which apparently has the rights for a high-speed train to Singapore but if political reform does take place, this technicality should be irrelevant.

…and so is the demand. A service between the two capitals is very much in demand given the distance of the KLIA or the uneconomical toll rates for single passengers travelling on the North South Highway. Furthermore a breakthrough in any deal is a strong motive to resolve the outstanding railway land dispute at the customs and immigration checkpoint.

Internet strategy to milk value from first class assets

Strategy is to leverage on property and leisure assets and YTL’s brand name

Internet strategy is not an exercise to burn cash but to make money. Dotcom has fast become a dirty word but YTL’s Internet strategy was never to become an aimless incubator fund. Investors should not be wary of the continued application of the new economy in the group, which is a necessary function for any leading company. The strategy may seem complicated and inappropriate but it is actually quite simple and is expected to be hugely profitable – a key differentiation which investors should find comforting.

Leveraging on established brand equity… What management is doing is that it recognises it has strong brand equity and is using the new economy to maximise value from it. YTL has almost become a Malaysian household name. This was not achieved overnight but tirelessly gained through distinction in the quality of its buildings, (apartments, houses and the national art centre), the multi-award winning hotels it owns and the New Year Parties it throws. This reputation is now at a new level with the purchase and transformation of Bintang Walk into the capital’s prime shopping district.

Retail and hospitality assets already have an established client base of 500,000 customers

…and realising hidden customer value of retail and leisure assets. The main focus will be to use its prime retail and hospitality assets to create critical mass of a loyal customer base. All of YTL’s hotels, restaurants and shopping malls serve more than 500,000 customers a year and the Internet is the ultimate solution to define and recognise its worth. This consolidation will be done through the creation of the ‘YTL e-community’ which will be principally a generous loyalty programme offering attractive discounts and services to all of YTL’s leisure assets at its disposal, from the company’s yacht to its diamond star resorts. Reception to this is expected to be more than good since there is no such example in Malaysia where most of the local Internet initiatives like and are just search engines and have no assets or a natural customer lists to build upon.

Membership could reach 4m with ERL and YTL e-community will profitable from day one

Membership of 500,000 could easily grow to 4m. 500,000 members for the YTL e-community will be just the start of its potential because by FY2002 the YTL’s total customer base will stretch to 4m once the ERL starts full operations and when the Sentul Raya development starts to be launched. It is quite easy to see that what YTL is doing is realising that it will play a large part in the daily lives of many Malaysians. Whether through its travel, shopping or homes, the YTL e-community and its corresponding website will leverage from this to create a unique franchise.

To be a content aggregator like Imode. Once critical mass is achieved, the company could look to introduce minimal subscription fees of RM50 a year. Investors may be sceptical of this since a lot of the new economy models are free and based on advertising revenue, but the attraction of membership will be YTL’s assets. For RM50 a year, a subscriber will easily make back that money on discounts and free trips and exclusive booking and payment access in anything from the ERL to hotels. From YTL’s point of view, RM50 on a potential 3-4m subscriber base means RM150m in revenue a year. Profits are expected immediately and to be close to the revenue, figure since there are just staff and promotional costs involved and Siemens providing a state of the art data management system for only RM480,000. The discounts offered by the leisure assets would be easily recovered by the loyal customer base and the expected increased volume of business. We have not factored in a single feature in YTL’s new economy plans in our numbers hence any success here will be significant bonus to the group’s expected performance.