17 October 2011

YTL Power to be privatized? (Oct 2011)

According to The Edge over the weekend, "rumours are swirling that YTL Group has hired local investment bankers to work on a possible corporate exercise that could result in its restructuring".  YTL Power and YTL Land, whereby YTL Corp has a 51.7% and 57.9% stake in respectively, are said to be targets for privatization or share swap exercises to align the group.

Well, if this is true, it definitely will boost the said target companies share prices. Before jumping to the conclusion, let us get the view from professionals. With that, we have a timely article from RHB Research who touched on this matter as below:

"We believe the likelihood of a privatization is low, as its FY12 PE of 12.8x is not much lower than its 5-year average forward PE of 14.7x. Besides, YTL Power's FY12 PE is similar to the 13x PE used for our end-2012 FBM KLCI 1,385 target."

"Also, we believe it will be very costly to privatize YTL Power. While YTL Power could take on more debt to facilitate such a privatization, it would significantly hamper its ability to acquire distressed utility assets in Europe."

"Our calculations indicate that at RM2.21 (assuming a 20% premium to its last traded price of RM1.84), YTL Corp would need RM8.3bn to buy out the remaining 48.3% equity stake held by minorities and assuming full conversion of outstanding warrants. A share swap is more likely as there is not much cash at the holding company, YTL Corp."

Any synergies from consolidating?
"We do not see much synergies in realigning the companies via a share swap exercise if YTL Corp were to consolidate YTL Power and YTL Land into a single entity, since there is little overlap among these businesses."

Investment case...
"We maintain our Market Perform call on YTL Power with an unchanged SOP-derived fair value of RM2.00. YTL Power offers a decent net dividend yield of 5.1% - the key investment thesis for the stock. While news flow will lift short-term sentiment, concerns over expanding WiMAX losses may cap longer-term upside potential".

Source: RHB research report dated 17th Oct 2011

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