Limited downside risk. The resumption of share buy-backs suggests a price floor may have been found. The group faces operational headwinds, but we think this is unlikely to have a material impact on share price performance. Recent corporate actions are supportive of an eventual share swap, thus we reiterate our BUY rating on YTLP. The stock risks becoming a value trap if no privatisation offer is made.

Down, but outperforming parent. At its peak, YTLP was up 10% post our note in Dec 2012. However, the gains have since been reversed as YTL Corp’s (failed) bid for Stanstead Airport in Jan 2013 invoked concerns that YTLP’s cashflows could be earmarked for purposes other than dividends. Nevertheless, on a relative basis, YTLP has outperformed parent YTL Corp by 8% YTD.

What more can be done? Quarterly dividends have already been stopped. YTLP has instead resumed share buy-backs (average cost of MYR1.46), which we concur would be more conducive for privatisation. Halting share buy-backs could drive share price lower, but would potentially drag down YTL Corp’s share price as well, producing little incremental benefits for YTL Corp’s shareholders in a share swap.

Operational headwinds, but likely immaterial to share price. The Great Britain pound has depreciated by 5% against the Malaysian ringgit YTD. Meanwhile, the competitive landscape in Singapore could intensify, leading to margin pressure at PowerSeraya. We are relatively unperturbed, as we believe the investment thesis now revolves primarily on corporate actions rather than earnings.

Lower target price to MYR1.70. We shave FY13-15 net profits by 5%/ 8%/10% to reflect lower contributions from Wessex Water (weaker GBP) and PowerSeraya (lower margins). Our new TP of MYR1.70 is based on a 10% discount to our RNAV estimate of MYR1.89, in turn derived from a sum-of-parts with each operating entity valued using DCF. Our target price implies a PER of 11.7x and P/B of 1.3x in FY13.

Source: Maybank Research - 03 Apr 2013