Highlights

• YTLP has announced that its indirectly wholly owned subsidiary YLTP Jawa Energy B.V. (registered in Netherlands) has entered into an agreement with Bel Air Hotel (SPA) for the acquisition of Marriott The Hague, a 306 guestroom hotel in Netherlands, for a cash consideration of EUR60.3m (RM290m).

• We are relatively surprised with the acquisition as hotel operation is not within YTLP’s core business.

• We believe that the exercise is just a part of parent co., YTL Corp group exercise to eventually transfer the hotel asset to YTL Hospitality REIT (hotel and resort management).

• YTL Hospitality REIT currently owns 14 hotels and resorts in Malaysia, Japan and Australia, which include JW Marriott KL, Melbourne Marriott, Brisbane Marriott and Sydney Harbour Marriott.

• The valuation of the acquisition is c.RM0.9m/room, comparable to other Marriott hotels under YTL Hospitality REIT: 1. JW Marriott KL – 569 rooms: RM0.7m/room 2. Sydney Harbour Marriott – 595 rooms: RM2.2m/room 3. Brisbane Marriott – 267 rooms: RM1.0m/room 4. Melbourne Marriott – 186 rooms: RM1.3m/room

• There is no information on the profitability of the acquired hotel.

• Nevertheless, the proposed acquisition is not expected to have any material effect on the earnings, net assets or gearing of YTLP.

Risks

Downside risks –

• Appreciation of RM against other foreign currencies.

• YTLC facing strong competition from existing telcos.

• Lower regulatory return for Wessex Water.

• Continued pricing pressure (tariff) in Seraya Singapore.

Forecasts

• Unchanged.

Rating

BUY ( ↔ )

• YTLP’s earnings has bottomed in FY06/17 and expected to rebound in FY06/18 following the commencement of Paka Power PPA extension in Sep 2017 and potential turnaround of YES communication with increasing subscriber base. Long term growth will be driven by commencement of Jordan Attarat Power and Indonesia Jawa Power by 2020.

Valuation

• Maintain BUY with unchanged Target Price of RM1.45 based on 10% discount to Sum-of-Parts.

Source: Hong Leong Investment Bank Research - 20 Mar 2018