YTL Power may come under selling pressure

Background

YTL Power's holding company, YTL Corp has announced that it will be making a renounceable offer for sale (ROS) of shares in YTL Power at RM1 per share to its shareholders on the basis of 1 YTL Power share for every 10 YTL Corp held. The short-term impact of this exercise is likely to be a positive for YTL Corp but a negative for YTL Power.

Purpose

To show that YTL Power could be a good investment if the share price were to drop under the above-mentioned exercise.

Current Financial Performance

YTL Power reported its 4Q2006 results ended 30/6/2006 yesterday. Its net profit has increased 21.2% q-o-q or 38.4% y-o-y to RM263 mil. Turnover has increased 15.2% q-o-q or 10.4% y-o-y to RM1.026 billion. The improved performance is attributable to higher contribution from Wassex Water Group. For the full year ended 30/6/2006, net profit increased 17.8% to RM874 million on the back of a 2.4%-increase in turnover to RM3.758 billion. EPS has also increased from 15.84 sen for FYE 2005 to 17.87 sen in FYE 2006.








Technical Picture

From Chart 1 (monthly chart), we can see that YTL Power is a long-term uptrend since 1998. That uptrend line will provide good support at RM1.70 & rising. Since Feb 2002, the share's uptrend has ascelerated. The ascelerated uptrend provides support at RM1.90. For a clearer view of this ascelerated uptrend, go to Chart 2 (weekly chart). From Chart 3 (daily chart), you can see that the share is in an ascending triangle with breakout at RM1.97 & support at RM1.92. At 4.30 p.m., the share is at RM1.90.

















Chart 1: YTL Power's monthly chart as at August 24


















Chart 2: YTL Power's weekly chart as at August 24



















Chart 3: YTL Power's daily chart as at August 24

Valuation

Based on its 2006 EPS of 17.87 sen & the price of RM1.90 now, YTL Power is trading at 10.6 times. If the share price can drop to the long-term uptrend line support of RM1.70, the PE at that price would work out to be 9.5 times. At around 10 times, YTL Power is an attractive stock. This is especially so given the fact that YTL Power is a defensive stock as it is involved in the water & power generation sectors.

Recommendation

Watch out for YTL Power as it tests & hopefully breaks the RM1.90 level. It would be a good addition to your long term portfolio if it ever drops to the RM1.70 level. If you feel generous, you can ever get in earlier than RM1.70.