March 17, 2010

TANJONG - Price Target News

Stock Name: TANJONG
Company Name: TANJONG PUBLIC LIMITED COMPANY
Research House: RHB

Tanjong plc
(March 16, RM17.48)
Maintain outperform at RM17.48, fair value at RM19.10
: Tanjong is expected to report its 4Q results for the financial year ended January 2010 some time next week. Our full-year net profit estimate implies that 4Q net profit could be down by around 20% year-on-year (y-o-y) (ex-4QFY09 exceptionals) and 30% quarter-on-quarter (q-o-q).

Both the power and gaming divisions are expected to post weaker earnings y-o-y and q-o-q while we expect a q-o-q drop in contribution from Tropical Island largely due to seasonal factors.

For the power division, lumpy items such as business development and bidding costs as well as scheduled maintenance expenses were relatively minimal in 9MFY10 but could skew 4Q's numbers.

As an example, business and corporate development costs alone totalled RM42 million in 9MFY09. A weaker US dollar versus the ringgit (-4.8% y-o-y; -2.2% q-o-q) would also impact the division's contribution slightly.

As for the gaming segment, we expect weaker operating profit for the quarter largely on expectations of a higher prize payout for the number forecasting operation (NFO) division as the ratio normalises. 9M prize payout was low at an estimated 63.3%, as compared to our full-year assumption of 65%.

We expect Tanjong to declare an interim gross dividend per share (DPS) of 17.5 sen (4QFY09: 17.5 sen) and a final gross DPS of 22 sen (FY09 final gross DPS: 20 sen). This will bring the total gross DPS for FY10 to 92 sen (FY09: 90 sen) and translates to a gross yield of 5.3%.

In our view, growth for the power division would depend on acquisitions. Tanjong targets to double its power capacity to 8,000MW over the next four to five years. As liquidity begins to flow again, we believe there is greater possibility of a new acquisition.

As for the gaming division, we believe it is just a matter of time before Tanjong introduces a new game. Assuming the new game brings in around RM1 million in sales per draw, we estimate our earnings projections could be raised by around 2%.

There is no change to our forecast for now. We keep our sum-of-parts-derived fair value of RM19.10 and outperform call unchanged. Tanjong's quarterly numbers have, thus far, reaffirmed our view that the stock is fundamentally solid, with decent gross dividend yields of 5% to 5.5% per annum. - RHB Research Institute, March 16


This article appeared in The Edge Financial Daily, March 17, 2010.

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