Analysts' Recommendation

JP Morgan upgrades YTL Power to OVERWEIGHT

JP Morgan (Asia Pacific Equity Research), 17 January 2005

YTL Power
Upgrade: Overweight
Previous Rating: Neutral
Current Price: M$1.84
Price Target: M$2.20

Improving catalysts - switch from Malakoff

Malakoff outperformed YTL Power in 2004: Malakoff was one of the best performing stocks in 2004, appreciating 40% over the last 12 months. While we continue to like the stock over the long term because of its 60% capacity growth by 2007, we think YTL Power (only up 9% last 12 months) may outperform in the shorter term.

Upgrade YTL Power to Overweight: The catalysts to YTL Power’s stock price include: (1) Improving capital management with the distribution of a stock dividend amounting to a 4% yield. Cash dividends too have room for improvement with only 24% of operating cash flow paid out (2) Recent strength of the sterling vis-à-vis the ringgit could boost Wessex’s profits by around 5%, and (3) Tenaga potentially increasing its offtake from YTL Power at marginal costing. We upgrade our recommendation on YTL Power to Overweight with a 12-month price target of M$2.20/share based on 13x P/E, the market average.

85% 4 year earnings growth at Malakoff: Progress at its Tanjung Bin plant is proceeding on schedule. Its completion by August 2007 will see earnings enhancement of 85% from FY2004 levels. However, the company needs to increase its dividend payout in order to provide further shorter-term stock price momentum (currently under 3% yield).

Blackout at Tenaga to hurt potential tariff hike. The power blackout which affected Kuala Lumpur and four other states in west coast of Peninsula Malaysia on 13 January may affect Tenaga’s chances for a tariff review, in our view. The government has always said that a tariff review will only come if Tenaga can prove it is a more efficient utility.

Malaysia - Utilities
Joe Liew

Head of Utilities
Bill Laukka