26 July 2016 Corporate Update YTL Corporation Berhad Taking YTLE private Maintain NEUTRAL Maintain Target Price (TP): RM1.50 INVESTMENT HIGHLIGHT YTL is proposing to take 74% owned YTLE private To be satisfied via share swap Limited impact to existing YTL shareholders as share dilution is offset by value expansion from increased stake in YTLE Maintain NEUTRAL at unchanged SOP-derived TP of RM1.50/share. Proposal to take YTLE private. YTL Corporation (YTL) is proposing to take ACE market-listed YTL E-Solutions (YTLE) private via share swap. YTL already owns an approximately 74% stake in the YTLE and in this exercise, is proposing to take out the remaining 26%. YTLE currently entails ~1.3b shares outstanding and the 26% not already owned by YTL translates to about 348m shares. Values both units at market price. The proposal values YTLE at RM0.55/share based on its 5-day volume weighted average market price (VWAP) and YTL at its 5-day VWAP of RM1.65/share. This translates into a share swap exchange ratio of around 0.33 new YTL shares for YTLE shares. The estimated total YTL shares to be issued in this case are 116m in exchange for 348m shares in YTLE (representing the 26% not already owned by YTL in YTLE). Offsetting impact between share dilution and value expansion : 1) A 1% dilution in shareholding in YTL given the issuance of 116m new shares of YTL (vs base share outstanding of 10.4b) to the minority shareholders of YTLE, and 2) A 1% expansion in absolute value of YTL given the expansion of YTL s stake in YTLE from 74% to 100%. YTLE contributes 3% of our SOP valuation of YTL pre-privatisation exercise. We maintain NEUTRAL on YTL at unchanged SOP-derived TP of RM1.50/share. FY16F 5% dividend yield is still attractive. However, near-term, earnings will face headwinds, especially at YTL Power driven by: (1) The weaker GBP which will impact Wessex Water s earnings, (2) Overcapacity in the Singapore power sector which will impact Power Seraya earnings. RETURN STATS Price (25 July 2016) 1.69 Target Price 1.50 Expected Share Price Return -11.2% Expected Dividend Yield +5.4% Expected Total Return -5.8% STOCK INFO KLCI 1631.09 Bursa / Bloomberg Board / Sector Syariah Compliant 4677 / YTL MK Main / Conglo No Issued shares (mil) 10,418.6 Par Value (RM) 0.10 Market cap. (RM m) 16,669.8 Price over NA 1.98x 52-wk price Range RM1.40-RM1.61 Beta (against KLCI) 0.48 3-mth Avg Daily Vol 7.92m 3-mth Avg Daily Value Major Shareholders RM12.2m YEOH TIONG LAY & SON 49.3% DEUTSCHE BANK AG/SIN 10.1% MIDF RESEARCH is a unit of MIDF AMANAH INVESTMENT BANK Kindly refer to the last page of this publication for important disclosures
INVESTMENT STATISTICS FYE Jun 2013 2014 2015 2016F 2017F Revenue 20,033.1 19,269.2 16,821.6 17,584.9 18,049.9 EBIT 2,921.7 3,685.7 3,230.2 2,868.7 3,366.9 Pretax Profit 2,299.4 2,811.6 2,365.9 1,813.2 2,270.0 Minority Interest (564.2) (1,050.0) (689.8) (462.4) (561.8) Net profit 1,266.7 1,555.0 1,069.7 897.5 1,140.7 EPS (sen) 12.2 15.0 10.3 8.7 11.0 PER (x) 13.1 10.7 15.6 18.5 14.5 Dividend 2.5 12.0 9.5 8.7 11.0 Dividend yield (%) 1.6 7.5 5.9 5.4 6.9 Source: Company, MIDFR DAILY PRICE CHART Source: Bloomberg Hafriz Hezry hafriz.hezry@midf.com.my 03-2772 1679 2
YTL CORPORATION SOP VALUATION Value/shar YTLC's stake Shares Price Market Cap Valuation method Value Group's businesses e Listed Subsidiaries: 7,034,372,40 10,199,839,98 MIDF's fair value of 57.77% 1.45 YTL Power 6 9 RM1.45 5,892 0.57 YTL Land 57.89% 829,171,602 0.59 493,357,103 market price 286 0.03 1,345,326,10 74.12% YTL e-solutions 0 0.55 739,929,355 market price 548 0.05 1,324,388,88 59.03% YTL Hospitality REIT 9 1.09 1,443,583,889 market price 852 0.08 2,153,218,26 36.27% Starhill Global REIT 7 0.77 1,647,211,974 market price 1,756 0.17 Unlisted Businesses Cement 100% 13xEV/EBITDA 10,701 1.03 Construction 100% 10xPE 26 0.00 20,063 1.93 less: net debt @ - holding Co 1254.122-0.12 Total Equity Value 18,809 1.81 15% conglomerate discount 1.50 3
Income Statement (RMm) 2013 2014 2015 2016F 2017F Revenue 20,033 19,269 17,243 17,585 18,050 EBIT 2,922 3,686 3,324 2,869 3,367 Net finance cost (1,019) (1,124) (1,264) (1,320) (1,370) Associates 396 250 257 265 273 Pretax profit 2,299 2,812 2,317 1,813 2,270 Taxation (468) (207) (579) (453) (568) Minority Interest (564) (1,050) (618) (462) (562) PATAMI 1,267 1,555 1,120 898 1,141 EPS (sen) 12.2 15.0 10.8 8.7 11.0 DPS (sen) 2.5 12.0 8.6 8.7 11.0 Balance Sheet (RM m) 2013 2014 2015 2016F 2017F Non-current assets Property, plant and equipment 22,207 25,314 26,472 27,388 28,315 Associates 3,430 1,649 1,649 1,649 1,649 Intangible assets 4,785 5,014 5,014 5,014 5,014 Others 2,505 9,405 9,405 9,405 9,405 Total non-current assets 32,928 41,383 42,541 43,457 44,384 Current assets Inventories 849 774 878 895 919 Receivables 3,537 2,967 2,702 2,756 2,828 Cash and bank balances 13,814 13,216 13,844 14,252 14,122 Others 2,476 2,703 2,703 2,703 2,703 Total current assets 20,676 19,660 20,126 20,606 20,572 Total assets 53,603 61,042 62,667 64,062 64,956 Current liabilities Payables 3,460 3,253 2,811 3,195 3,185 Borrowings 4,227 5,396 5,396 5,396 5,396 Other current liabilities 422 525 525 525 525 Total current liabilities 8,110 9,174 8,733 9,116 9,106 Long term liabilities Deferred taxation 2,404 2,276 2,276 2,276 2,276 Borrowings 26,515 28,189 30,032 31,043 31,947 Others 1,390 1,624 1,624 1,624 1,624 Total long term liabilities 30,309 32,088 33,931 34,942 35,847 Financed by: Shareholders' equity 15,185 19,780 20,004 20,004 20,004 4
Cashflow Statement (RM'm) 2013 2014 2015 2016F 2017F Cashflow from operations (CFO) Pretax profit 2,299 2,812 2,317 1,813 2,270 Non-cash adjustment 2,476 2,720 1,772 1,853 1,917 Inventories (39) (75) (104) (17) (24) Receivables (21) (570) 265 (54) (73) Payables (49) (207) (442) 384 (10) Others (126) (13) - - - Net change in WC (235) (865) (281) 312 (107) Tax paid (468) (207) (579) (453) (568) Others (1,301) (153) (618) (462) (562) CFO 2,771 4,306 2,611 3,063 2,951 Cashflow from investing (CFI) Capex (3,241) (2,680) (2,930) (2,769) (2,844) Others (27) 120 - - - CFI (3,268) (2,560) (2,930) (2,769) (2,844) Cashflow from financing (CFF) Dividends paid (259) (259) (896) (898) (1,141) Proceeds from borrowings 11,609 2,383 5,860 5,538 5,689 Repayment of borrowings (9,624) (3,263) (4,161) (4,671) (4,931) Others (694) (1,560) 143 145 146 CFF 1,033 (2,700) 947 114 (236) Net change in cash 535 (953) 627 408 (130) Effect of exchange rate & bank overdraft 1.727 356 - - - B/f cash balance 13,277 13,814 13,216 13,844 14,252 Ending cash balance 13,814 13,216 13,844 14,252 14,122 Key Ratios 2013 2014 2015 2016F 2017F Return on Equity (%) 9.6% 10.8% 7.7% 6.1% 7.8% Profitability Margin 6.3% 8.1% 6.5% 5.1% 6.3% Assets Utilisation 37.4% 31.6% 27.5% 27.4% 27.8% Return on Assets (%) 3.4% 4.3% 1.8% 1.4% 1.8% Current Ratio (x) 2.5 2.1 2.3 2.3 2.3 Quick Ratio (x) 1.8 1.5 1.7 1.6 1.6 BV per share 1.3 1.4 1.4 1.4 1.4 Dividend Payout Ratios (%) 20% 80% 80% 100% 100% 5
MIDF RESEARCH is part of MIDF Amanah Investment Bank Berhad (23878 - X). (Bank Pelaburan) (A Participating Organisation of Bursa Malaysia Securities Berhad) DISCLOSURES AND DISCLAIMER This report has been prepared by MIDF AMANAH INVESTMENT BANK BERHAD (23878-X). It is for distribution only under such circumstances as may be permitted by applicable law. Readers should be fully aware that this report is for information purposes only. The opinions contained in this report are based on information obtained or derived from sources that we believe are reliable. MIDF AMANAH INVESTMENT BANK BERHAD makes no representation or warranty, expressed or implied, as to the accuracy, completeness or reliability of the information contained therein and it should not be relied upon as such. This report is not, and should not be construed as, an offer to buy or sell any securities or other financial instruments. The analysis contained herein is based on numerous assumptions. Different assumptions could result in materially different results. All opinions and estimates are subject to change without notice. The research analysts will initiate, update and cease coverage solely at the discretion of MIDF AMANAH INVESTMENT BANK BERHAD. The directors, employees and representatives of MIDF AMANAH INVESTMENT BANK BERHAD may have interest in any of the securities mentioned and may benefit from the information herein. Members of the MIDF Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein This document may not be reproduced, distributed or published in any form or for any purpose. MIDF AMANAH INVESTMENT BANK : GUIDE TO RECOMMENDATIONS STOCK RECOMMENDATIONS BUY TRADING BUY NEUTRAL SELL TRADING SELL Total return is expected to be >15% over the next 12 months. Stock price is expected to rise by >15% within 3-months after a Trading Buy rating has been assigned due to positive newsflow. Total return is expected to be between -15% and +15% over the next 12 months. Total return is expected to be <-15% over the next 12 months. Stock price is expected to fall by >15% within 3-months after a Trading Sell rating has been assigned due to negative newsflow. SECTOR RECOMMENDATIONS POSITIVE NEUTRAL NEGATIVE The sector is expected to outperform the overall market over the next 12 months. The sector is to perform in line with the overall market over the next 12 months. The sector is expected to underperform the overall market over the next 12 months. 6