• YTL Power International (YTL Power) announced that it has agreed to acquire Bel Air Den Haag Beheer B.V. (Bel Air) through its indirect wholly-owned subsidiary, YTL Jawa Energy. Bel Air is the owner of the Marriott The Hague.

• Marriott The Hague is a 306-guestroom hotel located in The Hague, Netherlands.

• The acquisition represents the entire issued and outstanding shares of Bel Air. It is for the consideration of €60.3mil in cash. This translates to RM290mil at EUR/MYR of 4.8095.

• Recent notable hotel transactions in the nearby city of Amsterdam were for Jaz in the City by Steigenberger (166 rooms) and Park Hotel (189 rooms) by AXA Real Estate and Pandox AB respectively. The price per room for these transactions ranged between €128,000 and €238,000. Therefore, YTL Power’s transactional price of €197,000 appears fairly reasonable.

• While the acquisition appears fair, it remains beyond YTL Power’s core business of operating power, utility and telecommunication assets. However, the financial impact appears minimal at this juncture.

• YTL Power’s financial position remains sound. As of Dec 2017, its cash position of RM8.9bil should comfortably fund the acquisition. YTL Power’s net gearing would inch up to 1.48x from 1.45x.

• We hold on to our earnings forecast as the immediate financial impact is insignificant. Maintain our HOLD recommendation and our SOP derived FV of RM1.38. It implies a P/E of 27.6x FY19F EPS. While we like YTL Power for its reliable operational execution, the absence of compelling growth drivers in the interim caps its upside potential.

Source: AmInvest Research - 20 Mar 2018