Published November 28, 2008

With RM11b in hand, YTL eyes cheap assets

The firm generates excitement due to its growth despite the financial turmoil

By S JAYASANKARAN
IN KUALA LUMPUR
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IF you had invested RM10,000 (S$4,180) in YTL Corporation 23 years ago and held on, you would have over RM700,000 by now.

Mr Yeoh: His growth strategy is to acquire assets overseas using profits earned in Malaysia

That's why the firm still generates excitement.

In April last year Lucius Chong, an analyst with JPMorgan, paid his first visit to the Malaysian infrastructure and utilities company and came away sufficiently impressed to forecast a price target of RM9.20 for the stock when it was trading at around RM7.

He is still sticking to his guns predicting that the firm should reach RM8.80 now despite a looming slowdown amid unprecedented global financial turmoil.

YTL Corp, 52 per cent owned by the family of businessman Yeoh Tiong Lay, is an enormous holding company with a market capitalisation of RM9.7 billion, and its six separate listed entities are involved in everything from construction, telecommunications and cement manufacturing to power generation and property.

Francis Yeoh Sock Ping, 54, a smooth-talking opera buff and the eldest son of the patriarch Yeoh, runs the company now and frequently talks about the firm's cash hoard of RM11 billion that he can use to buy assets on the cheap.

Strictly speaking, the firm is in a net debt position to the tune of almost RM11 billion, but JPMorgan's Mr Chong points out that much of the debt is ring-fenced on a project-by-project basis and without recourse to the holding company.

So, Mr Yeoh is right about using the cash most of which lies with 53 per cent-owned YTL Power which contributes more than 70 per cent of the conglomerate's profits.

Mr Yeoh's growth strategy is overseas acquisition - power distribution in Australia, a water utility in Britain, a real estate investment trust in Singapore - using profits made in Malaysia to rebrand YTL as a global infrastructure company. In many ways people like Mr Yeoh epitomise an expanding group of Malaysian businessmen that has come of age. Long overshadowed by foreign multinationals, local companies now have the capability and the financial heft to outbid their bigger foreign brethren for assets up for grabs anywhere in the world.

In YTL Corp's case, some of those opportunities came courtesy of Enron's collapse in the United States and the retreat of American power companies from overseas investments. YTL Corp's RM6.89 billion acquisition of Britain's Wessex Water in 2002, for example, came about after Enron put Wessex up for sale. Now the global financial crisis has made assets worldwide cheap and Mr Yeoh has openly said that he is on the lookout.

Mr Yeoh's critics attributed his success to his connections, particularly his closeness to former premier Mahathir Mohamad. But to tie Mr Yeoh's rise too closely to political patronage would be inaccurate. Although he made his money from a key break in 1992, Mr Yeoh hasn't frittered away his company's money on grandiose schemes. And unlike other Malaysian businessmen handed similar breaks, he hasn't overreached himself either.

Indeed, he has created shareholder value: over the last 15 years, YTL has delivered around 30 per cent in compounded growth in earnings per share.

Power generation through Malaysia's first independent power producer vaulted YTL into the big leagues. For the year ended June 30, 2008, YTL Corp made a core net profit of RM848 million on revenues of RM7.8 billion.

This compares with RM44 million in net earnings in 1994 before contributions from power operations began flowing.