Analysts' Recommendation

UBS: YTL Corp 'Outperform'

UBS Wealth Management Research, 5 May 2006

Equity Report

YTL has a track record of buying assets at low prices and realizing the values at the right time, e.g. the listing of Starhill Real Estate Investment Trust (REIT). Going forward, growth will be driven by its overseas operations, mainly in the UK and Indonesia. Valuations are attractive at 10x '07 P/E vs. 16x market P/E. In addition, as 75% of YTL's pretax-profit is derived from utilities, YTL Corp. at 1.3x P/BV is a cheaper proxy to its listed utilities subsidiary, YTL Power (12x P/E, 1.8x P/B).

YTL started as a construction company and diversified into utilities via its 58% listed subsidiary, YTL Power (YTLP), when it secured the first Independent Power Producer license in Malaysia in the early 1990's. The IPP has a 'take-or-pay' contract up to 2015.

YTL then acquired Wessex Water of the UK, in May 2002, and a 35% stake in PT Jawa in December 2004. PT Jawa owns and operates a coal-fired power plant in Jawa and has a 30-year power purchase agreement with a state-owned power utility company.

FY06 will see a jump in YTL's earnings due to the one-off gain from the injection of assets into Starhill REIT (YTL retains a 51% stake). Going forward, earnings growth will be driven by the full-year impact of a rate hike at Wessex Water and contribution from its Indonesian power plant, PT Jawa.

With 75% of its 2005 pretax profit derived from utilities, YTL is a cheaper proxy to YTLP as YTL is trading at 10x 2007 P/E and 1.3x P/BV vs. YTLP's 12x P/E and 1.8x P/BV.