PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

Resu lts Pr eview

22 June 2010
MARKET DATELINE

Tanjong plc Share Price

Fair Value
:
:
RM17.86
RM19.20
1Q Net Profit Likely Down YoY, Mainly Due To NFO Recom : Market Perform
(Maintained)

Table 1 : Investment Statistics (TANJONG; Code: 2267) Bloomberg: TJN MK

Net Core EPS Net
FYE Turnover profit EPS EPS# Growth# PER# C.EPS* P/NTA Gearing ROE GDY
Jan (RMm) (RMm) (sen) (sen) (%) (x) (sen) (x) (x) (%) (%)
2010 5,219.9 676.8 167.8 165.1 26.4 10.8 - 1.9 0.95 18.8 5.6
2011f 5,325.4 693.1 171.9 171.9 4.1 10.4 172.0 1.7 0.74 17.3 5.7
2012f 5,403.7 707.8 175.5 175.5 2.1 10.2 177.0 1.6 0.56 16.1 5.8
2013f 5,474.0 712.3 176.6 176.6 0.6 10.1 185.0 1.5 0.41 14.8 5.9
Main Market Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC # Excl EI * Consensus Based On IBES Estimates

♦ 1QFY11 net profit expected to be weaker yoy but up significantly Issued Capital (m shares) 403.3
over 4QFY10. Tanjong is expected to report its 1QFY01/11 results at the Market Cap (RMm) 7,202.2
end of the month. We expect 1Q net profit could be down yoy (low Daily Trading Vol (m shs) 0.4
double-digit) due to weaker contribution from gaming and, possibly, 52wk Price Range (RM) 13.20-19.12
power, while qoq, net profit is expected to be significantly higher thanks Major Shareholders: (%)
to better contribution from NFO as well as seasonally stronger results Tan Sri Ananda Krishnan 30.9
from Tropical Island. Capital Group 11.0
♦ Power division. For the power division, potential lumpy items that could
impact the 1Q results include business development and bidding costs as
well as scheduled maintenance expenses, both of which were relatively FYE Jan FY11 FY12 FY13
minimal last year. Two power plants are scheduled to undergo EPS chg (%) - - -
maintenance this year and this is expected to cost around RM50m. A Var to Cons (%) (0.1) (0.8) (4.5)
weaker US$ vs. RM (-9% yoy; -2.4% qoq) would also impact the
PE Band Chart
division’s contribution.
♦ Gaming division. As for the gaming segment, we expect yoy and qoq PER = 14x
fluctuations would mainly be due to prize payouts. Tanjong enjoyed good PER = 12x
PER = 10x
luck factor in 1HFY10, which, not surprisingly, reversed in 2H as the PER = 8x
payout ratio tends to normalise over time (1QFY10 payout ratio: 61.6%;
4QFY10: 72.3%). As for the RTO segment, we expect operating losses of
RM15-20m/quarter as the group continues to work towards a solution.
♦ Dividends. We expect Tanjong to declare a first interim gross DPS of
17.5 sen (1QFY10: 17.5 sen gross). Our FY11 gross DPS projection of 102
sen assumes Tanjong declares a gross DPS of 17.5 sen/quarter plus a
final gross DPS of 32 sen. Relative Performance To FBM KLCI
♦ Outlook. The next leg of growth for the power division would depend on
acquisitions. With the global economy recovering, power projects are
being opened for bidding and in line with this, Tanjong targets to double
Tanjong plc
its generating capacity to 8,000MW over the next five years through a
combination of greenfield developments and M&A activities. As for the
gaming division, we believe it is just a matter of time before Tanjong
introduces a new game. The group is also actively engaging with the turf
clubs, Malaysian Totalisator Board and Ministry of Finance to resolve the FBM KLCI
operating losses posted by the RTO division (FY10: RM65.8m).
♦ Risks. 1) Stronger RM/US$ would impact overseas power profits; 2)
Higher-than-expected NFO prize payout; 3) Sovereign risk of overseas
power projects; 4) Change in landscape under the National Energy Plan;
and 5) High foreign shareholding (38.8% as at end-May).
♦ Forecasts. No change to our forecasts for now.
♦ Investment case. We keep our SOP-derived fair value of RM19.20 and
Market Perform call unchanged. In our view, Tanjong stands a strong
chance of securing some of the new power projects, which we believe
David Chong, CFA
would be value accretive. Our SOP valuation does not reflect such
(603) 9280 2186
additions and hence, we see upside potential to our fair value if Tanjong
david.chong@rhb.com.my
is successful with its bids.

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Table 2 : SOP Fair Value Calculation

SOP (RMm) SOP/share (RM)
Domestic power DCF @ WACC of 9.7% 3,274.2 8.12
Egypt power DCF @ WACC of 9.5% 637.4 1.58
Globeleq power DCF @ WACC of 10% 586.8 1.46
Gaming @ 15x PER 1,953.1 4.84

Other assets:
Tropical Island (BV less losses) 70.0 0.17
TGV @ BV 70.2 0.17
Menara Maxis @ BV 672.0 1.67
Taweelah B (10%) - Equity value of US$3bn cost 204.0 0.51
Less: Net debt (excl debt arising from acquisitions) 271.1 0.67
Total revalued NAV (RMm) 7,738.8 19.19
Share cap (m) 403.3
Source: RHBRI estimates

Table 3 : Earnings Forecasts Table 4 : Forecast Assumptions

FYE Jan (RMm) FY10a FY11F FY12F FY13F FYE Jan FY11F FY12F FY13F
Power 2,811.7 2,767.0 2,793.4 2,809.6 Power plant capacity (MW)
Gaming 2,043.2 2,164.2 2,196.7 2,229.7 - Teluk Gong (Powertek) 440 440 440
Property 57.1 53.9 55.2 56.6 - Tanjung Kling (Pahlawan) 330 330 330
Leisure 307.8 340.3 358.3 378.1 - Teluk Gong 2 (Panglima) 720 720 720
Turnover 5,219.9 5,325.4 5,403.7 5,474.0 - Suez Gulf 683 683 683
Growth (%) 4.8 2.0 1.5 1.3 - Port Said East 683 683 683
- Globeleq (effective stake) 751 751 751
EBITDA 1,499.1 1,481.3 1,475.9 1,471.9 Total installed capacity - Msia 1,490 1,490 1,490
EBITDA margin (%) 28.7 27.8 27.3 26.9 Total installed capacity - Overseas 2,116 2,116 2,116
Depreciation (296.8) (308.6) (313.9) (318.9) Gaming
No. of outlets 347 347 347
EBIT 1,202.3 1,172.7 1,162.0 1,153.1 Ticket sales (RMm) 2,164 2,197 2,230
Net int exp/Other inc (358.9) (309.1) (284.3) (273.6) Ticket sales growth (%) 5.4 1.5 1.5
Associates 87.8 92.5 94.8 98.1 Sales/Draw (RMm) 12.7 12.9 13.1
Exceptionals 22.0 0.0 0.0 0.0 Payout (% of gross sales) 65.0 65.0 65.0
Pre-tax profit 953.3 956.1 972.4 977.6
Tax (204.7) (186.1) (186.0) (186.2)
Minorities (71.8) (77.0) (78.6) (79.1)
Net profit 676.8 693.1 707.8 712.3
Net excl EI 665.7 693.1 707.8 712.3

Source: Company data, RHBRI estimates

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 22 June 2010

Chart 1: Tanjong Technical View Point

♦ Tanjong resumed its uptrend after regaining its
medium-term positive signal when the 10-day SMA
cut to above the 40-day SMA in Jul 2009, following
a sideways consolidation near RM13.10 for months.

♦ Its uptrend continued until it reached the RM18.00

level in Jan 2010. Thereafter, it has constantly met
with strong resistance at RM18.00.

♦ Although it managed to pierced through the hurdle

and shot up to a fresh high of RM19.12 in early Apr
2010, it has failed to sustain at above RM18.00.

♦ Subsequently, it fell back to below RM18.00 and

traded within a tight range from RM17.00 –
RM18.00 for the past two months.

♦ Yesterday, the stock closed at RM17.86 with a

negative candle, following recent advances.

♦ Technically, although the momentum readings

appear encouraging, the upside is still capped at
RM18.00, in our opinion.

♦ We expect the stock to stick within its current

trading range from RM17.00 – RM18.00 in the near
term.

IMPORTANT DISCLOSURES

This report has been prepared by RHB Research Institute Sdn Bhd (RHBRI) and is for private circulation only to clients of RHBRI and RHB Investment Bank
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The recommendation framework for stocks and sectors are as follows : -

Stock Ratings

Outperform = The stock return is expected to exceed the FBM KLCI benchmark by greater than five percentage points over the next 6-12 months.

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Trading Buy = Short-term positive development on the stock that could lead to a re-rating in the share price and translate into an absolute return of 15% or
more over a period of three months, but fundamentals are not strong enough to warrant an Outperform call. It is generally for investors who are willing to take
on higher risks.

Market Perform = The stock return is expected to be in line with the FBM KLCI benchmark (+/- five percentage points) over the next 6-12 months.

Underperform = The stock return is expected to underperform the FBM KLCI benchmark by more than five percentage points over the next 6-12 months.

Industry/Sector Ratings

Overweight = Industry expected to outperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Neutral = Industry expected to perform in line with the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

Underweight = Industry expected to underperform the FBM KLCI benchmark, weighted by market capitalisation, over the next 6-12 months.

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