Analysts' Recommendation

JP Morgan: YTL Power a World Beater

Kuala Lumpur, 6 June 2005


International research house JP Morgan has named YTL Power International Berhad among its World Beaters. One of the key characteristics of a World Beater is seen in YTL Power’s formidable local expertise that is replicable globally.


In the follow-up to last year’s inaugural World Beaters research piece, JP Morgan reported: “We believe companies poised to perform well abroad are those that can leverage on their formidable local expertise as well as their financial muscle to expand in the global arena,” before pointing out: “Local power giant, YTL Power, with 7% of Malaysia’s power plant capacity is looking abroad to create a sustainable income base outside Malaysia.”


The report added that although YTL  Power has 7% of local power plant capacity, the management has taken the effort to look abroad (including Australia, UK and Indonesia) to create a sustainable income base outside Malaysia. Management expertise and financial strength are the key competitive strength for the group.


Asia Pacific Equity Research, 1 June 2005


YTL Power

Expanding by acquisition




A globally competitive company?


YTL Power is the builder, owner and operator of two gas-fired combined cycle power plants in Malaysia with a combined capacity of 1,212MW since 1993. It used the funds that the Malaysian IPP license generated to embark on a series of acquisitions that boosted earnings and increased management expertise in the fields it invested in. At present, YTL Power owns a water and sewerage company in the UK, owns and operates a privatized transmission network in South Australia, and owns a 35% stake in Jawa Power.


About 60% of YTL Power’s earnings are now from overseas sources. YTL Power’s latest acquisition was the 35% stake in Jawa Power (2 x 610MW coal-fired power station located in Paiton complex, East Java). The acquisition has proved to be a great asset so far with a 4-5-year payback period (i.e. 20% returns over the life of the concession).


Share price catalysts?


Management is looking at making other value-adding acquisitions in Indonesia because returns are high. With its financial strength and experience in Jawa Power, YTL’s chances are higher than other Malaysian infrastructure players.


Without a value-adding acquisition, YTL Power is well placed to increase its net dividend payout ratio from the current 53%. Its FCF yield is 9%, compared to its current net dividend yield of 4%.




P/E ratings of 12.3x and 11.5x are undemanding relative to the market average of 13x and 12x for FY05E and FY06E, respectively.


The stock provided a CAGR (including dividends reinvested) of 22% p.a. over the last three years from distributing dividends and growing its regulated business overseas. We believe management possesses the right ingredients in repeating its success.


By Joe Liew

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