Cim Ytl@mk 060514 006

ConglomerateMalaysia
June 5, 2014

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Reaping an abundant harvest at
home
After many years of expanding its global footprint abroad, YTL has
shifted its focus back to the home front to reap the value of its
investments across the nation's infrastructure cycle, spurred on by the
countrys Economic Transformation Programme.

We upgrade our FY15/16 EPS
forecasts by 6-8% as we factor in the
construction earnings from the recent
Track 4A concession to a consortium
led by YTL Power. Our target price,
based on a 20% discount to RNAV, is
raised by 24% as we re-value YTL's
cement business on EV/EBITDA from
EV/tonne to better reflect its position
as a key growth catalyst. YTL remains
an Add and is one of our top picks.
Shifting from abroad to
opportunities at home
Our recent meetings with
management underscored the theme
of YTL shifting its focus from
growth-via-acquisition abroad to
growth-via-execution at home. While
quantitative easing had crowded out
the commercial returns of prospective
M&A deals, such as YTLs attempted
bid on Londons Stansted Airport,
opportunities at home grew in
abundance on the back of initiatives
under the countrys Economic
Transformation Programme (ETP).
Escalation of orderbook
Construction is poised to be a new
powerful earnings catalyst for YTL,
kicking off with the recent Track 4A
IPP award to a consortium led by YTL
Power. YTL should benefit from the
construction of the RM6bn project,
and its orderbook could swell further
with the possible RM8bn Express Rail
Link (ERL) extension to Melaka and
the RM30bn high speed rail (HSR)
project to Singapore.
Strong earnings upgrade
momentum
At 10.3x FY15 P/E, YTL's valuations
are the cheapest among the
conglomerates under our coverage
not just in Malaysia but in the region.
Valuations are compelling, taking into
account further potential earnings
upside coming from a growing
orderbook, higher passenger numbers
on the ERL to KLIA2, and the
turnaround of the 4G mobile
broadband division with the roll out
of TD-LTE services over the next two
years.
YTL Corporation
COMPANY NOTE
YTL MK / YTLS.KL

Current RM1.61

Market Cap Avg Daily Turnover Free Float Target RM2.42
US$5,152m US$5.20m 50.1%
Prev. Target RM1.94
RM16,687m RM16.85m 10,739 m shares
Up/Downside 50.0%
Conviction| |

Sources: CIMB. COMPANY REPORTS

Notes from the Field

Lucius CHONG
T (60) 3 2261 9070
E lucius.chong@cimb.com

Company Visit Expert Opinion
Channel Check Customer Views

Show Style "View Doc Map"

Let us not become
weary in doing good, for at the
proper time we will reap a
harvest,
Galatians 6:9

82.0
88.3
94.5
100.8
107.0
1.400
1.500
1.600
1.700
1.800
Price Close Relative to FBMKLCI (RHS)
Source: Bloomberg
20
40
60
80
100
Jun-13 Sep-13 Dec-13 Mar-14
V
o
l
m

Financial Summary
Jun-12A Jun-13A Jun-14F Jun-15F Jun-16F
Revenue (RMm) 20,196 19,973 20,572 23,658 22,475
Operating EBITDA (RMm) 4,118 3,850 4,067 4,523 4,465
Net Profit (RMm) 1,190 1,275 1,385 1,704 1,641
Core EPS (RM) 0.12 0.12 0.13 0.16 0.15
Core EPS Growth 6.2% (1.4%) 7.7% 23.0% (3.7%)
FD Core P/E (x) 13.25 13.44 12.48 10.15 10.54
DPS (RM) 0.040 0.025 0.030 0.040 0.040
Dividend Yield 2.48% 1.55% 1.86% 2.48% 2.48%
EV/EBITDA (x) 7.37 8.46 7.91 6.91 6.90
P/FCFE (x) 7.19 47.99 9.73 12.07 12.38
Net Gearing 108% 107% 90% 71% 58%
P/BV (x) 1.39 1.30 1.20 1.10 1.02
ROE 10.6% 10.0% 10.0% 11.3% 10.1%
% Change In Core EPS Estimates 0.00% 6.22% 7.66%
CIMB/consensus EPS (x) 0.99 1.13 1.07

1.61
2.42
1.49 1.77
Target
52-week share price range
Current

SOURCE: CIMB, COMPANY REPORTS
YTL Corporation

June 5, 2014

2

PEER COMPARISON

Research Coverage
Bloomberg Code Market Recommendation Mkt Cap US$m Price Target Price Upside
Gamuda GAM MK MY ADD 3,252 4.56 5.21 14.3%
Metro Pacific Investments Co MPI PM PH ADD 3,139 5.29 5.90 11.5%
NWS Holdings 659 HK HK ADD 6,757 14.00 14.33 2.3%
Sembcorp Industries SCI SP SG ADD 7,634 5.37 5.99 11.5%
YTL Corporation YTL MK MY ADD 5,152 1.61 2.42 50.0%

0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
4.00
4.50
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
Rolling P/BV (x)
Gamuda Metro Pacific Investments Co
NWS Holdings Sembcorp Industries
YTL Corporation

0.0
5.0
10.0
15.0
20.0
25.0
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14
12-month Forward Rolling FD P/E (x)
Gamuda Metro Pacific Investments Co
NWS Holdings Sembcorp Industries
YTL Corporation

0.00%
1.60%
3.20%
4.80%
6.40%
8.00%
9.60%
11.20%
12.80%
14.40%
16.00%
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15
Peer Aggregate: P/BV vs ROE
Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs)

0.0%
3.8%
7.5%
11.3%
15.0%
18.8%
22.5%
26.3%
30.0%
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
Peer Aggregate: 12-mth Fwd FD P/E vs FD EPS Growth
12-mth Fwd FD P/E (x) (See Footnote) (lhs) FD EPS Growth (See Footnote) (rhs)

Valuation
FD P/E (x) (See Footnote) P/BV (x) EV/EBITDA (x)
Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15
Gamuda 14.28 13.68 12.50 1.87 1.86 1.87 14.77 13.29 12.69
Metro Pacific Investments Co 17.72 15.23 13.26 1.46 1.34 1.23 8.98 8.12 6.82
NWS Holdings 13.39 12.57 11.75 1.24 1.17 1.11 7.60 7.20 7.15
Sembcorp Industries 12.57 12.10 11.27 1.82 1.66 1.52 6.26 5.40 4.86
YTL Corporation 12.94 11.18 10.35 1.25 1.15 1.06 8.18 7.38 6.91

Growth and Returns
FD EPS Growth (See Footnote) ROE (See Footnote) Dividend Yield
Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15 Dec-13 Dec-14 Dec-15
Gamuda 10.7% 4.4% 9.4% 13.8% 13.6% 14.9% 2.54% 2.54% 2.53%
Metro Pacific Investments Co 15.0% 16.4% 14.9% 8.7% 9.2% 9.7% 0.70% 0.68% 0.78%
NWS Holdings 0.5% 6.5% 7.0% 9.6% 9.5% 9.7% 4.21% 4.28% 4.26%
Sembcorp Industries 0.9% 3.9% 7.4% 15.6% 14.4% 14.1% 3.19% 3.38% 3.63%
YTL Corporation 3.0% 15.7% 8.0% 10.0% 10.7% 10.7% 1.71% 2.18% 2.48%

Calculations are performed using EFA Monthly Interpolated Annualisation and Aggregation algorithms to December year ends.
NPAT/EPS values for calculations and valuations are based on recurring and normali sed values for GAAP and IFRS accounting standard companies respectively.
YTL Corporation

June 5, 2014

3

85% of revenue comes from
overseas
Capex coming down after
investing at home over the
last few years

Share price info
Share px perf. (%) 1M 3M 12M
Relative -1 1.1 -9.7
Absolute -1.2 3.2 -4.7
Major shareholders % held
Yeoh Tiong Lay & Sons 49.9
EPF 7.7

0.00%
1.20%
2.40%
3.60%
4.80%
6.00%
7.20%
8.40%
9.60%
10.80%
12.00%
0.00
0.20
0.40
0.60
0.80
1.00
1.20
1.40
1.60
1.80
2.00
P/BV vs ROE
Rolling P/BV (x) (lhs) ROE (See Footnote) (rhs)

-20%
-11%
-2%
7%
16%
24%
33%
42%
51%
60%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
18.0
12-mth Fwd FD Core P/E vs FD Core EPS
Growth
12-mth Fwd Rolling FD Core P/E (x) (lhs)
FD Core EPS Growth (rhs)

Profit & Loss
(RMm) Jun-12A Jun-13A Jun-14F Jun-15F Jun-16F
Total Net Revenues 20,196 19,973 20,572 23,658 22,475
Gross Profit 4,230 4,156 4,240 4,706 4,659
Operating EBITDA 4,118 3,850 4,067 4,523 4,465
Depreciation And Amortisation (1,338) (1,452) (1,452) (1,452) (1,452)
Operating EBIT 2,780 2,399 2,616 3,071 3,013
Financial Income/(Expense) (1,000) (1,001) (1,031) (1,062) (1,094)
Pretax Income/(Loss) from Assoc. 679 916 934 1,134 1,184
Non-Operating Income/(Expense) 0 0 0 0 0
Profit Before Tax (pre-EI) 2,459 2,313 2,518 3,143 3,103
Exceptional Items
Pre-tax Profit 2,459 2,313 2,518 3,143 3,103
Taxation (476) (468) (504) (629) (621)
Exceptional Income - post-tax
Profit After Tax 1,983 1,846 2,015 2,514 2,483
Minority Interests (793) (571) (630) (810) (842)
Preferred Dividends
FX Gain/(Loss) - post tax
Other Adjustments - post-tax
Net Profit 1,190 1,275 1,385 1,704 1,641
Recurring Net Profit 1,190 1,275 1,385 1,704 1,641
Fully Diluted Recurring Net Profit 1,190 1,275 1,385 1,704 1,641

Cash Flow
EBITDA 4,118 3,850 4,067 4,523 4,465
Cash Flow from Invt. & Assoc. 192 227 232 282 294
Change In Working Capital (92) (154) (11) (74) (29)
(Incr)/Decr in Total Provisions
Other Non-Cash (Income)/Expense 399 (436) 120 0 0
Other Operating Cashflow (423) (176) 0 0 0
Net Interest (Paid)/Received (682) (757) (1,031) (1,062) (1,094)
Tax Paid (580) (656) (504) (629) (621)
Cashflow From Operations 2,932 1,898 2,873 3,040 3,015
Capex (1,509) (3,303) (2,219) (1,607) (1,618)
Disposals Of FAs/subsidiaries 819 261 0 0 0
Acq. Of Subsidiaries/investments (498) (39) 0 0 0
Other Investing Cashflow (150) (187) 0 0 0
Cash Flow From Investing (1,339) (3,268) (2,219) (1,607) (1,618)
Debt Raised/(repaid) 600 1,727 1,123 0 0
Proceeds From Issue Of Shares
Shares Repurchased (530) (274) 0 0 0
Dividends Paid (376) (259) (322) (430) (430)
Preferred Dividends (341) (161) (178) (229) (237)
Other Financing Cashflow 4 5 6 7 8
Cash Flow From Financing (643) 1,038 629 (651) (659)
Total Cash Generated 950 (332) 1,283 781 738
Free Cashflow To Equity 2,193 357 1,777 1,433 1,397
Free Cashflow To Firm 2,594 (369) 1,686 2,495 2,491

BY THE NUMBERS
YTL Corporation

June 5, 2014

4

Cash builds up to RM20bn by
FY16 increasing M&A
potential

Balance Sheet
Total Cash And Equivalents 13,925 14,405 16,720 18,435 19,746
Total Debtors 3,583 3,578 3,684 4,231 4,021
Inventories 929 893 910 1,011 1,000
Total Other Current Assets 2,021 1,854 1,554 1,675 2,201
Total Current Assets 20,458 20,729 22,869 25,351 26,969
Fixed Assets 20,620 22,193 22,961 23,117 23,283
Total Investments 4,022 4,230 4,230 4,230 4,230
Intangible Assets 4,717 4,785 4,785 4,785 4,785
Total Other Non-Current Assets 1,806 1,682 1,702 1,723 1,743
Total Non-current Assets 31,165 32,891 33,679 33,855 34,042
Short-term Debt 616 1,350 1,350 1,350 1,350
Current Portion of Long-Term Debt 11,003 2,877 0 0 0
Total Creditors 3,519 3,466 3,579 4,152 3,903
Other Current Liabilities 795 417 417 417 417
Total Current Liabilities 15,933 8,110 5,345 5,918 5,670
Total Long-term Debt 17,585 26,515 30,515 30,515 30,515
Hybrid Debt - Debt Component
Total Other Non-Current Liabilities 902 824 824 824 824
Total Non-current Liabilities 18,486 27,339 31,339 31,339 31,339
Total Provisions 2,825 2,613 2,613 2,613 2,613
Total Liabilities 37,244 38,062 39,297 39,870 39,622
Shareholders' Equity 12,179 13,333 14,396 15,671 16,882
Minority Interests 2,201 2,224 2,854 3,664 4,506
Total Equity 14,379 15,558 17,250 19,335 21,388

Key Drivers
Rev. growth (%, main biz.) 8.5% -0.1% -15.4% 1.3% -3.1%
EBITDA mgns (%, main biz.) 19.5% 19.9% 20.6% 21.0% 22.0%
Rev. as % of total (main biz.) 78.1% 78.8% 64.8% 57.0% 58.2%
EBITDA as % of total (main biz.) 64.1% 65.6% 49.2% 46.0% 43.2%
Rev. growth (%, 2ndary biz.) 8.6% -0.7% 1.8% 30.5% 12.9%
EBITDA mgns (%, 2ndary biz.) 28.8% 28.3% 27.9% 29.0% 28.0%
Rev. as % of total (2ndary biz.) 11.8% 11.8% 11.7% 13.3% 15.8%
EBITDA as % of total (2ndary biz.) N/A N/A N/A N/A N/A
Rev. growth (%, tertiary biz.) N/A N/A N/A N/A N/A
EBITDA mgns (%, tertiary biz.) N/A N/A N/A N/A N/A
Rev.as % of total (tertiary biz.) N/A N/A N/A N/A N/A
EBITDA as % of total (tertiary biz.) N/A N/A N/A N/A N/A

BY THE NUMBERS

Key Ratios
Revenue Growth 10.0% (1.1%) 3.0% 15.0% (5.0%)
Operating EBITDA Growth 6.0% (6.5%) 5.6% 11.2% (1.3%)
Operating EBITDA Margin 20.4% 19.3% 19.8% 19.1% 19.9%
Net Cash Per Share (RM) (1.48) (1.55) (1.44) (1.28) (1.16)
BVPS (RM) 1.15 1.24 1.34 1.46 1.57
Gross Interest Cover 2.78 2.40 2.54 2.89 2.75
Effective Tax Rate 19.4% 20.2% 20.0% 20.0% 20.0%
Net Dividend Payout Ratio 35.4% 21.1% 23.3% 25.2% 26.2%
Accounts Receivables Days 65.38 64.83 63.70 60.42 66.52
Inventory Days 20.22 21.01 20.15 18.50 20.66
Accounts Payables Days 77.94 80.42 78.59 74.34 82.63
ROIC (%) 10.1% 8.2% 8.4% 9.7% 9.4%
ROCE (%) 6.14% 5.00% 5.17% 5.78% 5.46%

YTL Corporation

June 5, 2014

5

Reaping the harvest at home
1. BACKGROUND
1.1 Macro backdrop and succession planning
We met Tan Sri (Dr) Francis Yeoh (TSFY), group MD, in a small group meeting
and also attended a talk given by him and his son Jacob Yeoh for the 7
th
edition
of the Global Malaysia Series hosted by Dato Seri Idris Jala and the ETP. The
subject was YTLs representation as a family-owned company operating in the
global landscape. This was particularly relevant because it is estimated that half
of the value of the listed companies in Asia are family owned but when we look
at the examples of family-owned companies in the West, 85% of the
family-owned companies on the Forbes 100 list had dissipated into
institutionally-owned corporations.
TSFY said the global environment for investing was not conducive for YTL
because of the excessively high global liquidity on the back of quantitative
easing. He believes there is a risk of another global crisis in two to four years'
time and this is one of the reasons why the group has been relatively quiet on
the M&A front despite having RM14bn of cash on its balance sheet. Its last
meaningful acquisition was Power Seraya in 2008. M&A transactions for YTL
could well pick up again if a crisis does emerge or when interest rates start to
rise.
Private equity funds currently have a huge capacity to do deals, crowding out
those seeking reasonable rate of return on assets. YTL had first-hand
experience in this with its attempted bid for Londons Stansted Airport in 2013.
Its 1.2bn bid valued Stansted at an IRR of 8-9%, with duty-free shopping and
retail potentially adding another 1-2% pts to the valuation. However,
Manchester Airport Plc, backed by private equity money from Industry Funds
Management, won the bid by paying 25% more, buying Stansted for its
cashflows and not for returns.
On succession planning - spirituality, education and merit are the key defining
tenets of how the family will move YTL forward in the generations to come. The
27 Yeohs in the next generation will have to earn their place in the company
though qualification and meritocracy. All family members will have a share of
the family trust but in order to be a trustee, they will have to be qualified
professionals at the highest level as well as work their way up through
management.

1.2 Switching from growth-via-acquisition abroad to
growth-via-execution at home
While M&A prospects abroad are muted pending a change in the credit cycle,
there has been a clear pick-up in activity at home across all its businesses. Our
key takeaway is that YTL is entering a new organic earnings growth cycle at
home following what has been largely a growth-through-acquisition strategy
abroad. We believe this is not a coincidence. The chronology of its investments
shows a clear acceleration in tapping the opportunities provided by the ETP.
- the RM3bn 4G mobile broadband network rolled out in 2010
- the RM150m Majestic Hotel completed in 2012
- the 2km extension to the KLIA2 completed last month
- the new RM1bn 1.8 mmtpa cement plant in Kuantan ready end-2014
- the latest RM6bn Track 4A gas-fired concessions to be ready by 2018
- potentially winning the RM30bn HSR project to Singapore
YTL Corporation

June 5, 2014

6

Idris Jala commented that one of the key initiatives of the ETP, apart from
getting the economy moving with high-impact projects, was to address the
nation's low trade surplus - net trade currently contributes only 7% to GDP vs.
70% from domestic consumption. His aim is to double that single-digit figure
and move it closer to the likes of South Korea. Growing this portion of GDP
required South Korea to have global champions, such as Samsung, that export
and earn value from their intellectual capital. By inference, YTL is Malaysias
potential global champion or at least it will be at the forefront to bring about
that change with its 1BestariNet education project, a key platform to elevate the
intellectual value of the countrys education system.

2. OUTLOOK
2.1 Significance of the ERL
According to the latest guidance, the ERL extension to KLIA2, which
commenced operations at the start of this month, is expected to increase the
number of ERL passengers by 4m a year, implying 60% growth from 2013
levels. This is higher than our current assumption of 40%. There is, therefore,
upside to our forecasts if this can be sustained.
Although we recently turned negative on Malaysia Airports's (MAHB) traffic
growth because of potential route rationalisation by Malaysia Airlines, the
revenue scalability of the ERL on the back of KLIA2 remains intact. In the chart
below, we illustrate that the ERL lost a large portion of business when low-cost
carriers were relocated to the LCCT in 2006. The percentage of total air
passenger traffic handled by the ERL fell from 20% in FY06 to as low as 13% in
FY13. We expect this 20% benchmark to be regained by FY16, which is the
underlying assumption to our ERL forecasts.

Figure 1: ERLs share of air passenger traffic expected to move back to 20%
Title:
Source:
Please fill in the values above to have them entered in your report
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
35%
40%
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14F FY15F FY16F
no of passengers (m) share of air passenger traffic yoy growth in ridership

SOURCES: CIMB, COMPANY REPORTS

Our sensitivity analysis shows that every 1m additional passengers a year on the
ERL would increase our YTL FY15/16 EPS forecasts by 1.1%. The operating
leverage is significant since all costs except taxes are fixed. Although the
interest rate on ERL's RM2bn debt is expected to have risen from 0% to 11-13%
starting FY13-FY14, this has already been amortised under FRS139, whereby its
interest expenses surged from RM3m in FY10 to RM106m in FY11.
YTL Corporation

June 5, 2014

7

Figure 2: ERL's interest rate hike has been amortised since FY11
Dec-03 Dec-04 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Jun-12 Jun-13 Jun-14 Jun-15 Jun-16
Total revenue 86.3 111.7 187.3 117.5 129.4 121.5 139.2 151.1 160.4 182.0 241.7 281.6 328.3
staff costs -6.1 -5.4 -30.9 -25.2 -24.2 -24.6 -25.9 -27.5 -29.2 -31.6 32.1 32.9 33.0
operating expenses -56.3 -62.2 -77.9 -52.3 -38.8 -51.4 -58.9 -53.2 -56.2 -59.7 62.0 62.1 63.4
EBITDA 23.9 44.1 78.5 40.0 66.4 45.5 54.4 70.4 75.0 90.7 150.4 190.3 237.0
depreciation -11.5 -13.4 -21.1 -26.7 -29.9 -25.4 -41.5 -41.1 -41.0 -40.1 -39.2 -38.3 -37.4
EBIT 12.4 30.7 57.4 13.3 36.5 20.1 12.9 29.3 34.0 50.6 111.2 152.0 199.6
interest expense 0.0 0.0 -3.8 -4.5 -4.3 -4.4 -3.1 -105.7 -110.3 -109.9 -104.7 -100.1 -104.7
interest income 0.7 1.0 2.7 1.5 2.0 1.9 2.1 4.6 7.6 7.6 7.6 7.6 7.6
Pretax 13.0 31.8 38.5 28.1 34.1 17.7 -4.0 -59.1 -68.5 -52.4 14.1 59.5 102.5


2.2 RM8bn ERL extension a major catalyst for HSR
Despite being in operation for 12 years and carrying more than 50m passengers,
the ROCE of the ERL has been trending at 1-3%. The returns should not be
looked at in isolation because it is a 60-year concession and a strategic asset
geared towards the YTL's long-term objective of building the HSR to Singapore.
This is starting to manifest itself with the recent proposal by the ERL to extend
the line to Seremban and Melaka for RM8bn.
The competitive advantage of winning the HSR project is not only based on
capital cost but on securing the right of way. The ERL ensures the right of way
between KL and KLIA while the extension to Melaka will lock in the right of
way for half of the journey to Singapore. The other half, traversing through
Iskandar, could come from another strategic partnership such as the successful
alliance between YTL Power and SIPP Energy to secure the Track 4A
concession in Johor.
We believe once the right of way is established, YTLs chances to win the HSR
will be second to none, since the advantage in capital cost is already in place.
We estimate that based on the RM8bn or RM90m/km cost for the ERL
extension to Melaka, YTLs total cost of the 330km HSR will be around
RM30bn. Since the RM8bn extension will represent a large portion of the
HSRs parallel commuter line (the HSR will have two lines point-to-point and
a secondary transit line) the net cost for YTL could be around RM22bn
(RM30bn minus RM8bn), which is much lower than other competing bids for
the HSR that are upwards of RM40bn.
The impact of the ERL extension and the HSR to YTL will primarily be from
construction earnings. We estimate that based on a conservative 5% net margin
for both projects, our FY16 EPS forecasts could increase by a further 16%. An
NPV impact is unclear, as we are not sure whether the HSR will be on the
governments balance sheet or fully funded and owned by the private sector. If
this is the case, the ERL is likely to be used as the vehicle to raise capital and an
IPO will likely follow, diluting YTLs stake from 50%.

2.3 ASPs in cement to remain firm
Recent 3QFY14 results highlighted YTL Cement as a star performer, with its
earnings expanding 38% YTD for the first nine months. We expect this
momentum to accelerate with the commissioning of the fourth integrated 1.8m
mtpa plant in Kuantan by the end of the year which will increase YTL Cements
capacity by 30%. Although total industry capacity growth could potentially
expand by more than 15% in 2014, we continue to be positive on YTLs pricing
power. YTL Cements ASPs have been on an uptrend to counter rising
production costs. While our forecasts are based on the assumption that ASPs
will level off, we nonetheless expect demand to keep ASPs firm, especially for
the premium quality products, such as YTLs slag cement.
YTL Corporation

June 5, 2014

8

Figure 3: Cement margins maintained in the face of higher energy prices
FY08 FY09 FY10 FY11 FY12 FY13
ASP (RM/tonne) 160 190 189 221 245 243
coal price (US$/tonne) 41.3 70.7 91.7 118.3 95.5 69.7
industrial eletricity (sen/kw) 24.9 28.5 30.9 30.9 30.9 36.2
EBITDA margin 25.1% 28.3% 27.8% 27.5% 28.8% 28.3%


The other factor that will continue to keep YTL Cement's margins more
favourable than its peers will be savings on energy. The company has been able
to insulate itself against rising coal and electricity prices because its integrated
plants have been configured to burn palm kernel and old rubber tyres. Not only
does this saves costs but distinguishes the environmental standard of its
cement. This is important in the Singapore market which is going through a
protracted infrastructure cycle as well.
Although there could be a risk of oversupply coming through over the next few
years, it is worth noting that two players, LaFarge Malayan (LFM) and YTL, will
continue to control 75% of the industry's total capacity. This means it is most
likely that ASPs will remain rational rather than come under heavy pressure
compared to other markets in the region. We also believe that excess supply can
continue to be released to markets abroad. LFM is part of the global LaFarge
network while YTL Cement has a strong presence in Singapore and has
representative offices in Indonesia and Myanmar.

2.4 LTE capex much lower than expected
In our initiation report on YTL, we highlighted that the key catalyst in the
turnaround of YTL Powers mobile broadband division would be the
introduction of TD-LTE services by YTL Communications. We estimated that it
would cost RM1bn for TD-LTE to be offered, based on the assumption that each
base station would need three dedicated LTE transponders and that each
transponder would cost US$75,000. That is no longer the case and it seems
that the frequency of many of the base stations can be configured automatically
with a channel card. The estimated total cost to introduce TD-LTE is now
around US$100m or RM330m. When the configuration is completed for all
6,000 base stations and the ecosystem of 4G devices are fully fungible between
TD-LTE and LTE-FDD (used by the three telco incumbents), YTL Comms
should be able to compete on a level playing field. The expected timeline for
this is over the next two years.

Figure 4: YTLs advantage will come from no future escalation in fixed assets (RMm)
Title:
Source:
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
Maxis Digi.com Celcom Axiata YTL Communications


YTL Corporation

June 5, 2014

9

On a level playing field, it will be clear that YTL Comms will be able to
aggressively compete on pricing because the capital cost for its 4G all-data
network will be much lower than the three incumbents. Looking at the current
value of its fixed assets compared to the three incumbents, YTL Comms is
currently at the same level as Digi, but does not have to face an escalation in its
fixed capital base compared to the future capex requirements of the three
incumbents. The key issue going forward for the three incumbents as they roll
out their 4G network will be the baggage of their legacy 3G and voice assets on
their balance sheet.
According to Jacob Yeoh, YTL Comms business model will also be different - it
intends to minimise marketing costs and dedicate most of its opex to the
efficiency of its network. YTL Comms therefore intends to sell itself on its
services which makes sense since TD-LTE is more spectrum-efficient than
LTE-FDD.

2.5 Niseko and YTL Land are property jewels in waiting
The enormous value of the Niseko landbank is starting to be unlocked with the
maiden launch of eight luxury villas priced at US$6.5m each. This works out to
a valuation of US$1,250 psf. The valuation is a big step up given that when YTL
bought the land four years ago, the valuation of the Niseko luxury villas was
US$750 psf. It demonstrates that the Japanese real estate is coming back into
reckoning with potential mainland Chinese investment flooding in. The bet that
YTL made when it bought the Niseko landbank was that it believed that visa
restrictions would eventually be relaxed to allow the mainland Chinese to travel
outside of Tokyo. This since came to pass.
Although the political relationship between Japan and China still has much
room for improvement, the attraction of Niseko as the Aspen of the East is
compelling. It is only an hours flight from Shanghai and its Siberian snow is
ranked one of the best powders among the ski resorts globally. We currently
value YTLs 1,000 acres of landbank at US$1.3bn, working from the implied
valuation for the eight luxury villas. We see the potential for tremendous upside
for the asset since it is only at the start of its development cycle. TSFY believes
the valuation could reach US$5bn once the full potential of Niseko as a luxury
destination is realised.
Back home, there is also enormous value in YTL Land just waiting to be
unlocked but the sense we get is that the pace of development will continue to
be very measured, with the aim of conserving the remaining 114 acres of the
Sentul landbank into the next property cycle. The current GDV of Sentul is
estimated at RM13.3bn, based on the average valuation of RM1,000 psf of net
development area. This involves 3,000 condo units in Sentul East and 4,000
luxury condominiums in Sentul West and 1.4m sq ft of retail space in Sentul
Core. The current valuation of Sentul East units are currently at RM800 psf. All
development activity is expected continue to take place here. We believe Sentul
West will be conserved until prices reach RM2,000-3,000 psf because of the
exclusivity of the 37-acre private gated park. Given the land scarcity in KL, and
the fact that YTL Land is the only developer left with a sizeable landbank in the
city, it is mulling the possibility of carving out its freehold landbank into
leasehold.
Apart from Sentul, YTL has other small pieces of valuable landbank in the city
centre - it has 3 acres of freehold land next to the Prince Court Medical Centre
in KLCC that it bought in 1992 for RM109m, and 1 acre of freehold land in
KLCC that it bought in 2008 for RM93m. The 3 acres next to Prince Court has
been earmarked for a 50-storey building that will house all the YTL group of
companies and will probably be sold to Starhill Global REIT. It also bought 0.75
acres of landbank next to KL Sentral in 2008 for RM89m for commercial
development.

YTL Corporation

June 5, 2014

10

3. VALUATION AND RECOMMENDATION
3.1 Upgrading numbers on Track 4A
YTL will do most of the construction works for the Track 4A concession. We
estimate the contract to be at RM6bn and that YTL will earn a 5% net margin.
The margin is low because it is in the interest for YTL to preserve the sanctity of
returns from the concession since YTL Power is expected to be the majority
shareholder of the project. Although Track 4A was awarded on a direct
negotiation basis, the electricity rates are competitive and the project IRR is
estimated to be only 7%. We believe YTL will endeavour to lower construction
costs as much as possible to provide upside leverage to the IRR.
Based on the assumption of a 5% net margin and the timeline to bring Track 4A
onstream in 2018, we upgrade our EPS forecasts by 6% for FY15 and 8% for
FY16.
3.2 Incorporating construction into RNAV
Previously, we did not factor in YTLs construction business into our valuation
because its in-house order book was depleting and the unit was not generating
earnings. YTL has a policy of doing only in-house work because it does not want
to maintain the high overheads of a large construction division. With the
orderbook going from almost nothing to RM6bn and then potentially to
RM14bn from the ERL extension to Melaka and then to as high as RM36bn if
the High Speed Rail (HSR) project goes through by the end of the year, YTL
valuations could have the strongest re-rating upside coming from construction.
We currently value the earnings in the construction sector at 15.9x CY15 P/E,
which is its five-year historic average. It is currently at a discount to the current
sector P/E of 16.5x. If we apply the multiple to the construction earnings of
Track 4A, YTLs RNAV increases by RM1.6bn or 15 sen per share. We believe
the valuation is justified as it marks the start of a potentially strong order book
cycle, if the ERL extension and HSR kicks in.
3.3 Revaluing cement business
We are also changing our valuation methodology for the cement business from
a replacement cost of US$150 in EV/tonne to FY15 EV/EBITDA of 11x. We
believe EV/EBITDA better reflects the growth value of the business and the
multiple is in line with the current valuation of LFM. Although LFM is twice the
size of YTL Cement in capacity, YTL Cement is twice as profitable, with its net
profit surpassing LFM over the last two years. This justifies the valuation
comparison.

Figure 5: YTL Cement's margins enable it to generate higher net profit than LFM
Title:
Source:
0%
5%
10%
15%
20%
25%
30%
35%
-
50
100
150
200
250
300
350
400
450
2008 2009 2010 2011 2012 2013
YTLC net proft LaFarge net profit LaFarge EBITDA margin YTLC EBITDA margin


YTL Corporation

June 5, 2014

11

Figure 6: YTL's RNAV
methodology stake value YTL's share per YTL share
Listed subsidiaries
YTL Power target price 57.8% 17,160 9,919 0.96
YTL Land market cap 57.9% 829 480 0.05
YTL e solutions market cap 74.1% 812 602 0.06
11,000 1.06
REITs
YTL Hospitality REIT market cap 56% 1,210 680 0.07
Starhill Global REIT market cap 36% 4,388 1,580 0.15
2,260 0.22
Non-listed assets
YTL Cement EV/EBITDA 100% 10,030 10,030 0.97
Express Rail Link NPV 50% 2,688 1,344 0.13
Construction earnings 15.9x PER 100% 1,590 1,590 0.15
Niseko landbank US$26 psf 100% 4,290 4,290 0.41
net cash at holding co 100% 779 779 0.08
18,033 1.74
Total RNAV 31,293 3.02
20% discount 2.42


Figure 7: Sector Comparisons
Price
Target
Price
(local
curr)
(local
curr)
CY2014 CY2015 CY2014 CY2015 CY2014 CY2015 CY2014 CY2015 CY2014 CY2015
Beijing Enterprises 392 HK Add 69.75 82.30 11,445 16.2 13.0 1.38 1.27 8.8% 10.2% 13.9 12.0 1.6% 1.9%
NWS Holdings 659 HK Add 14.00 14.33 6,757 12.6 11.7 1.17 1.11 9.5% 9.7% 6.9 6.5 4.3% 4.3%
Far Eastern New Century 1402 TT Hold 31.35 34.00 5,369 18.8 15.7 1.39 1.37 7.4% 8.8% 7.9 7.0 4.1% 5.1%
Taiwan Fertilizer 1722 TT Reduce 59.20 63.00 1,931 15.2 14.2 1.08 1.06 7.1% 7.5% 19.7 16.2 5.2% 5.6%
China average 15.4 13.2 1.29 1.22 8.6% 9.5% 9.8 8.7 3.2% 3.6%
Boustead Singapore Ltd BOCS SP Add 1.85 2.06 772 15.2 14.4 2.53 2.29 17.4% 16.7% 8.4 8.6 3.0% 2.7%
Keppel Corporation KEP SP Add 10.67 13.20 15,428 12.3 11.6 1.82 1.67 15.4% 15.0% 12.4 11.4 3.6% 3.9%
Sembcorp Industries SCI SP Add 5.37 5.99 7,639 12.1 11.3 1.66 1.52 14.3% 14.1% 5.4 4.8 3.4% 3.6%
ST Engineering STE SP Add 3.85 4.40 9,555 18.9 17.7 5.18 4.83 28.2% 28.2% 11.2 10.5 4.9% 5.1%
Yoma Strategic Holdings YOMA SP Hold 0.78 0.75 718 64.8 39.3 2.39 2.29 3.7% 5.9% 41.8 25.8 0.6% 0.6%
Singapore average 13.9 13.0 2.19 2.02 16.4% 16.1% 9.8 9.0 3.8% 4.0%
Alliance Global Group AGI PM Hold 30.30 33.20 7,103 17.0 14.3 2.53 2.20 15.8% 16.5% 10.2 8.8 0.9% 1.2%
Metro Pacific Investments Co MPI PM Add 5.29 5.90 3,144 15.2 13.3 1.34 1.23 9.1% 9.7% 8.1 6.8 0.7% 0.8%
Philippines average 16.4 13.9 1.99 1.77 12.7% 13.5% 9.5 8.2 0.8% 1.1%
DRB-Hicom DRB MK Hold 2.41 2.56 1,443 13.7 14.5 0.53 0.52 4.2% 3.6% -2.5 -2.8 1.6% 1.4%
Oriental Holdings ORH MK Hold 7.74 7.60 1,487 22.3 19.8 1.04 1.02 4.7% 5.2% 7.7 6.5 0.5% 0.5%
Genting Bhd GENT MK Add 9.83 13.10 11,314 15.9 12.9 1.43 1.30 9.0% 10.6% 6.4 5.5 0.9% 0.9%
Gamuda GAM MK Add 4.56 5.21 3,261 13.7 12.5 1.86 1.87 13.6% 14.9% 12.7 12.1 2.5% 2.5%
Sime Darby Bhd SIME MK Hold 9.53 9.85 17,895 17.8 15.8 1.91 1.80 11.1% 11.8% 10.1 9.0 2.8% 3.2%
YTL Corporation YTL MK Add 1.61 2.42 5,167 11.6 10.0 1.15 1.07 10.4% 10.0% 7.6 7.2 2.2% 2.5%
Malaysia average 16.7 14.4 1.52 1.43 9.4% 10.2% 7.2 6.3 2.0% 2.2%
Larsen & Toubro Ltd LT IN Hold 1,675 1,525 26,151 30.3 24.8 3.85 3.46 13.2% 14.7% 14.7 12.4 0.9% 1.0%
John Keells Holdings JKH SL Add 235.0 267.0 1,785 16.1 16.1 1.82 1.68 11.9% 10.9% 13.7 13.8 2.1% 2.3%
Average (all) 15.1 13.5 1.62 1.51 11.1% 11.6% 8.6 7.7 2.7% 3.0%
Recurring ROE
(%)
EV/EBITDA (x)
Dividend Yield
(%)
Company
Bloombe
rg Ticker
Recom
.
Market
Cap (US$
m)
Core P/E (x) P/BV (x)


YTL Corporation

June 5, 2014

12

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YTL Corporation

June 5, 2014

13

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owed to such recipient therein are unaffected. CIMBS has no obligation to update its opinion or the information in this research report.
This publication is strictly confidential and is for private circulation only to clients of CIMBS. This publication is being supplied to you strictly on the basis that it will remain confidential. No
in whole or in part, for any purpose without the prior written consent of CIMBS.
Corporate Governance Report:
The disclosure of the survey result of the Thai Institute of Directors Association (IOD) regarding corporate governance is made pursuant to the policy of the Office of the Securities and
Exchange Commission. The survey of the IOD is based on the information of a company listed on the Stock Exchange of Thailand and the Market for Alternative Investment disclosed
to the public and able to be accessed by a general public investor. The result, therefore, is from the perspective of a third party. It is not an evaluation of operation and is not based on
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The survey result is as of the date appearing in the Corporate Governance Report of Thai Listed Companies. As a result, the survey result may be changed after that date. CIMBS does
not confirm nor certify the accuracy of such survey result.
Score Range: 90 100 80 89 70 79 Below 70 or No Survey Result
Description: Excellent Very Good Good N/A

United Arab Emirates: The distributor of this report has not been approved or licensed by the UAE Central Bank or any other relevant licensing authorities or governmental agencies
in the United Arab Emirates. This report is strictly private and confidential and has not been reviewed by, deposited or registered with UAE Central Bank or any other licensing authority
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provided to any person other than the original recipient and may not be reproduced or used for any other purpose. Further, the information contained in this report is not intended to lead
to the sale of investments under any subscription agreement or the conclusion of any other contract of whatsoever nature within the territory of the United Arab Emirates.
YTL Corporation

June 5, 2014

14

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Rating Distribution (%) Investment Banking clients (%)
Outperform/Buy/Trading Buy/Add 56.2% 4.6%
Neutral/Hold 28.0% 2.7%
Underperform/Sell/Trading Sell/Reduce 15.8% 1.0%
Distribution of stock ratings and investment banking clients for quarter ended on 31 March 2014
1416 companies under coverage for quarter ended on 31 March 2014

Spitzer Chart for stock being researched ( 2 year data )
YTL Corporation (YTL MK)
1.40
1.50
1.60
1.70
1.80
1.90
2.00
2.10
2.20
Jun-12 Oct-12 Feb-13 Jun-13 Oct-13 Feb-14
Price Close
n
a
2
.
0
0

1
.
9
4

Recommendations & Target Price
Add Outperform Hold Neutral Reduce Underperform Trading Buy Trading sell Not Rated

As at the time of publishing this report CIMB is phasing in an absolute recommendation structure for stocks (Framework #1). Please refer to all frameworks for a definition of any
recommendations stated in this report.
CIMB Recommendation Framework #1
Stock Ratings Definition
Add The stocks total return is expected to exceed 10% over the next 12 months.
Hold The stocks total return is expected to be between 0% and positive 10% over the next 12 months.
Reduce The stocks total return is expected to fall below 0% or more over the next 12 months.

The total expected return of a stock is defined as the sum of the: (i) percentage difference between the target price and the current price and (ii) the forward net dividend yields of the
stock.
Stock price targets have an investment horizon of 12 months.

Sector Ratings Definition
Overweight An Overweight rating means stocks in the sector have, on a market cap-weighted basis, a positive absolute recommendation.
Neutral A Neutral rating means stocks in the sector have, on a market cap-weighted basis, a neutral absolute recommendation.
Underweight An Underweight rating means stocks in the sector have, on a market cap-weighted basis, a negative absolute recommendation.

Country Ratings Definition
Overweight An Overweight rating means investors should be positioned with an above-market weight in this country relative to benchmark.
Neutral A Neutral rating means investors should be positioned with a neutral weight in this country relative to benchmark.
Underweight An Underweight rating means investors should be positioned with a below-market weight in this country relative to benchmark.

CIMB Stock Recommendation Framework #2 *
Outperform The stock's total return is expected to exceed a relevant benchmark's total return by 5% or more over the next 12 months.
Neutral The stock's total return is expected to be within +/-5% of a relevant benchmark's total return.
Underperform The stock's total return is expected to be below a relevant benchmark's total return by 5% or more over the next 12 months.
Trading Buy The stock's total return is expected to exceed a relevant benchmark's total return by 3% or more over the next 3 months.
Trading Sell The stock's total return is expected to be below a relevant benchmark's total return by 3% or more over the next 3 months.
YTL Corporation

June 5, 2014

15

* This framework only applies to stocks listed on the Singapore Stock Exchange, Bursa Malaysia, Stock Exchange of Thailand, Jakarta Stock Exchange, Australian Securities
Exchange, Taiwan Stock Exchange and National Stock Exchange of India/Bombay Stock Exchange. Occasionally, it is permitted for the total expected returns to be temporarily
outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.
CIMB Research Pte Ltd (Co. Reg. No. 198701620M)

CIMB Stock Recommendation Framework #3 **
Outperform Expected positive total returns of 10% or more over the next 12 months.
Neutral Expected total returns of between -10% and +10% over the next 12 months.
Underperform Expected negative total returns of 10% or more over the next 12 months.
Trading Buy Expected positive total returns of 10% or more over the next 3 months.
Trading Sell Expected negative total returns of 10% or more over the next 3 months.

** This framework only applies to stocks listed on the Korea Exchange, Hong Kong Stock Exchange and China listings on the Singapore Stock Exchange. Occasionally, it is
permitted for the total expected returns to be temporarily outside the prescribed ranges due to extreme market volatility or other justifiable company or industry-specific reasons.

Corporate Governance Report of Thai Listed Companies (CGR). CG Rating by the Thai Institute of Directors Association (IOD) in 2013.
AAV Good, ADVANC - Excellent, AMATA - Very Good, ANAN Good, AOT - Excellent, AP - Very Good, BANPU - Excellent , BAY - Excellent , BBL - Excellent, BCH Good,
BCP - Excellent, BEC - Very Good, BGH - not available, BJC Very Good, BH - Very Good, BIGC - Very Good, BTS - Excellent, CCET Very Good, CENTEL Very Good, CK -
Excellent, CPALL - Very Good, CPF Excellent, CPN - Excellent, DELTA - Very Good, DTAC - Excellent, EGCO Excellent, GLOBAL - Good, GLOW - Very Good, GRAMMY
Excellent, HANA - Excellent, HEMRAJ - Excellent, HMPRO - Very Good, INTUCH Excellent, ITD Very Good, IVL - Excellent, JAS Very Good, KAMART not available,
KBANK - Excellent, KKP Excellent, KTB - Excellent, LH - Very Good, LPN - Excellent, MAJOR Very Good, MAKRO Very Good, MCOT - Excellent, MEGA not available,
MINT - Excellent, PS - Excellent, PSL - Excellent, PTT - Excellent, PTTGC - Excellent, PTTEP - Excellent, QH - Excellent, RATCH - Excellent, ROBINS - Excellent, RS Excellent,
SAMART Excellent, SC Excellent, SCB - Excellent, SCC - Excellent, SCCC - Very Good, SIRI Very Good, SPALI - Excellent, STA - Good, STEC - Very Good, TCAP -
Excellent, THAI - Excellent, THCOM Excellent, TICON Very Good, TISCO - Excellent, TMB - Excellent, TOP - Excellent, TRUE - Excellent, TTW Excellent, TUF - Very Good,
VGI Excellent, WORK Good.

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