YTLP - Disposal of 15% in PT Jawa (HLIB)

Price Target: RM2.70

Share price: RM2.16

News:

 YTLP is disposing 42.86% equity stake in YTL Jawa BV, which in turn own 35% of Jawa 1,220MW coal-fired power plant, to Marubeni for US$224.0m (RM681.0m).

 The net proceeds is expected to be utilized for future investments in utility assets, working capital requirements and/or paring down of existing borrowings.

 YTLP is estimated to realize one-off gains of RM210.1m or 3.23 sen from the stake disposal.

 The deal is expected to be completed in the 1st half of FYE6/12.

Financial impact:

 Assuming deal completion on 31st December 2011, FYE6/12 core earnings will reduce by RM48m (3.5%) and recognize capital gain of RM210.1m, while FYE6/13 core earnings will reduce by RM96m (6.6%).

Pros / Cons:

 The exercise will reduce YTLP effective stake in PT Jawa Power to 20% from 35%.

 We believe the transaction will provide future opportunities for YTLP to form strategic partnerships with Marubeni (US$12.2bn market capital), who is a global trading company with diversified business portfolio including power projects and infrastructures.

 With the cash raised, net gearing (where most loans reside at operating company level) will improve marginally from 1.75x to 1.70x by end FYE6/12. Thus we believe YTLP is building up its war-chest and actively seek for oversea investment opportunities.

Risks Downside risks ¨

 Appreciation of RM against other foreign currencies.

 YTLC facing strong competition from the existing telcos.

Forecasts:

 Unchanged pending deal completion.

Rating:

BUY

 Positives ¨

 Strong and stable cash flow.

 Large cash piles (RM7.2bn) allowing YTLP to look for more value accretive acquisitions

 Relatively unaffected by the surging energy prices.

 Negatives:

 The increasing competitive landmarks for YTLC especially with the implementation of LTE networks by 2012.

Valuation:

 Maintain target price at RM2.70 based on Sum-of-Parts.