CIMB: YTL Power - Global utility play – ‘Outperform’, target price RM3.30
CIMB Research Report, September 12, 2007
Target Price: RM3.30
Global utility play
Utilities arm of YTL Corp. YTL Power is the global utilities arm of YTL Corporation. It owns power plants in
Modest earnings prospects but … We project modest annual earnings growth of 9-11% for FY09-10, fuelled mainly by higher efficiency for its power plants in
… ample M&A-led opportunities. Nevertheless, there is room for YTL Power to expand its earnings base by i) leveraging its cash hoard to seize lucrative M&A opportunities, ii) bidding for Singapore’s power assets and iii) utilising its Wessex expertise to tap into the local water industry.
Starting coverage with OUTPERFORM call. Given the 38% upside to our SOP-based target price of RM3.30, we initiate coverage on YTL Power with an OUTPERFORM call. Key re-rating catalysts include i) earnings-enhancing acquisitions, ii) further re-rating of UK water stocks, iii) opportunities in the local water industry and iv) treasury share distributions. Investors with a higher risk appetite could consider its 2000/2010 warrants (RM1.00, YTLPW, exercise price RM1.39, expiry 8 Jan 2010) which are currently in the money.