INVESTMENT HIGHLIGHT

• Offers to buyout YTL Land minorities via share swap; small dilutive impact

• Capitalising on YTL Land’s poor market valuations

• Possibly a valuation accretive deal for YTL

• Maintain NEUTRAL at unchanged TP of RM1.03 at this juncture

Offers to buyout YTL Land minorities. YTL is offering to acquire the remaining 35% of YTL Land it does not own via a share swap. YTL currently holds 65% of YTL Land and if successful with the offer, intends to delist YTL Land. YTL is also offering to buyout all outstanding YTL Land ICULS – YTL currently holds 79% of the ICULS.

Not the most attractive of valuations. YTL is offering to buy the remaining 35% of YTL Land at an offer price of RM0.36/share (RM104m), which is at par to the latest closing price. YTL Land is currently loss making and the offer represents a PBV valuation of just 0.39x. Meanwhile, the ICULS will be offered at market price of RM0.32/share (RM67m). For the share swap, YTL’s shares will be valued at RM1.14 (at par to market price), which implies an estimated 0.8x PBV.

Dilutive impact. As this is a relatively small deal for YTL, if the offer is fully taken up, YTL’s share base will expand only by an estimated 1.5% (or 150m new shares); 0.9% from acquisition of YTL Land’s shares and another 0.6% from acquisition of outstanding ICULS (See Exhibit 3). However, since YTL Land is loss making, consolidation of the remaining 35% of YTL Land’s losses is estimated to impact YTL’s FY20F net profit by 6% (from an incremental RM26m net loss) (See Exhibit 1).

Value creation? Valuation wise, this seems like a good deal for YTL since YTL’s share is currently trading at >100% premium to YTL Land’s PB valuation of 0.39x, giving rise to potential valuation accretion. Although YTL Land currently entails net gearing of 2.6x (vs. YTL’s 2.2x), its net debt is just 5.4% of YTL’s group net debt level.

Source: MIDF Research - 14 Jun 2019