PP 7767/09/2010(025354)

Malaysia Corporate Highlights

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

R e su l ts N o t e
1 July 2010
MARKET DATELINE

Tanjong plc Share Price

Fair Value
:
:
RM17.44
RM19.20
Results In Line But Dividends Surprise 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 10.6 - 1.9 0.95 18.8 5.7
2011f 5,325.4 693.1 171.9 171.9 4.1 10.1 172.0 1.7 0.74 17.3 5.8
2012f 5,403.7 707.8 175.5 175.5 2.1 9.9 177.0 1.6 0.56 16.1 6.0
2013f 5,474.0 712.3 176.6 176.6 0.6 9.9 185.0 1.4 0.41 14.8 6.1
Main Market Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC # Excl EI * Consensus Based On IBES Estimates

RHBRI Vs. Consensus

♦ 1QFY01/11 results in line. Tanjong’s 1QFY01/11 net profit of RM177m Above
(-7.4% yoy; +54% qoq) was within our and consensus expectations, In Line
accounting for 25.5-26% of our and consensus full-year estimates. Below

♦ Weaker net profit yoy due to power and NFO. 1Q EBIT rose 31.8% Issued Capital (m shares) 403.3
qoq largely due stronger contribution from: 1) NFO (+144% qoq), as a Market Cap (RMm) 7,032.8
result of lower prize payout (estimated 1QFY11: 65% vs. 4QFY10: 72%); Daily Trading Vol (m shs) 0.4
and 2) leisure division (1QFY11: RM9.2m vs. 4QFY10 operating loss of 52wk Price Range (RM) 13.30-19.12
RM12.9m) as 1Q tends to be a seasonally stronger period for Tropical Major Shareholders: (%)
Islands. Together with lower finance cost (-29.5% qoq), 1QFY11 net profit Tan Sri Ananda Krishnan 30.9
jumped 54% qoq (core basis). YoY, net profit fell 7.4% mainly due to: 1) Capital Group 11.0
lower EBIT from the power division (-10% yoy) stemming from weaker
US$ vs. RM (-9% yoy); and 2) lower EBIT from the NFO division (-19%
yoy) due to weaker average sales/draw (-9% yoy due to common draw FYE Jan FY11 FY12 FY13
days for special draws this year) and poorer luck factor (1QFY10 prize EPS chg (%) - - -

payout: 61.6%). As for the RTO segment, operating losses were roughly Var to Cons (%) (0.1) (0.8) (4.5)

stable yoy at RM16.8m (4QFY10 operating loss: RM19m).

PE Band Chart

♦ Declares interim gross DPS of 20 sen. Tanjong pleasantly surprised us

PER = 14x
with a first interim gross DPS of 20 sen, as compared to our expectations PER = 12x
and 1QFY10 gross DPS of 17.5 sen. Tanjong does not have a specific PER = 10x
PER = 8x
dividend payout policy, although guidance is that full-year dividends should
not be lower than the previous year. Hence, while we believe Tanjong is
likely to keep its future quarterly interim gross DPS at 20 sen, the final
DPS is a wildcard at this juncture and thus, we are keeping our full-year
gross DPS projection of RM1.02 unchanged for now (FY10: RM1/share).

♦ Outlook. A power plant is scheduled for major overhaul in 2HFY11 and a

Relative Performance To FBM KLCI

total of RM50m has been budgeted for this. Further out, the next leg of
Tanjong plc
growth for the power division would depend on adding new power assets.
Tanjong targets to double 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, the group is actively engaging with
the turf clubs, Malaysian Totalisator Board and Ministry of Finance to FBM KLCI

resolve the 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 earnings forecasts.

David Chong, CFA
♦ Investment case. Our SOP-derived fair value of RM19.20 and Market (603) 9280 2186
Perform call are unchanged. david.chong@rhb.com.my

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Table 2 : Earnings Review

QoQ YoY
FYE Jan (RMm) 1Q10 4Q10 1Q11 (%) (%) Comments
Revenue 1,310 1,279 1,265 (1) (3) YoY weaker mainly due to lower contribution from the power and
NFO divisions.

EBITDA 416 306 379 24 (9) Weaker yoy due to the power and NFO segments while qoq
improvement mainly due to stronger contribution from NFO and
seasonally stronger results from leisure.
Depreciation (77) (74) (74) (1) (4)
Inv & int income 1 1 (3) >100 >100
Interest expense (85) (110) (78) (29) (8) Total borrowings as at end-1QFY11 fell further to RM4.8bn vs.
RM5.2bn at end-4QFY10 and RM5.9bn at end-1QFY10.
Associates 15 24 19 (21) 21
Exceptionals 0 22 0 (100) nm Mainly relates to revaluation gain on Menara Maxis.
Pre-tax profit 269 169 242 44 (10)
Tax (53) (41) (49) 20 (8)
Minority interest (25) (2) (16) >100 (35)
Net profit 191 126 177 41 (7)
Core net profit 191 115 177 54 (7) 4QFY10 core net profit adjusted for net revaluation gain on Menara
Maxis.

Margins (%)
EBITDA 31.7 23.9 30.0
Pre-tax 20.6 13.2 19.2
Effective tax rate 19.7 24.2 20.2 Lower than Malaysian statutory tax rate due to tax-exempt income
from foreign operations.
Core PATMI 14.6 9.0 14.0

Segmental revenue
Power 693 695 666 (4) (4) Lower yoy due to combination of lower energy billings from the
Malaysian power plants and strengthening of RM (vs. US$).
Gaming 530 488 501 3 (5) NFO revenue lower yoy due to weaker blended NFO sales/draw (-
8.9% yoy), partly cushioned by two extra draw days. QoQ higher
mainly due to higher blended NFO sales/draw (+2.6% qoq).
Property investment 13 14 14 (2) 8
Leisure 74 81 83 2 12 Higher yoy mainly due to: 1) stronger contribution from Tropical
Island (visitor arrivals -1.2% yoy to 2,717, offset by higher ARPU
of €37.3 vs. €34.8 in 1Q10); and 2) higher contribution from TGV
(RM42m vs. 1Q10: RM33m).
Total 1,310 1,279 1,265 (1) (3)

Segmental results
Power 265 238 238 0 (10) Lower yoy due to strengthening of RM (vs. US$) and warranty
claim of RM10m in 1QFY10.
Gaming 62 7 47 >100 (24) Lower yoy due to higher NFO prize payout (1QFY11: 65% vs.
1QFY10: 61.6%). QoQ improvement largely due to lower prize
payout (4QFY10: 72%).
Property investment 11 9 14 46 24
Leisure 1 (13) 9 >100 >100 Tropical Island was EBIT positive in 1QFY11 while contribution from
TGV rose further to RM5.1m (1QFY10 EBIT: RM1.8m). QoQ
improvement largely reflects seasonality for TI.
Others (1) (10) (4) (64) >100

Source: Company data, RHBRI estimates

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Table 3 : 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 4 : Earnings Forecasts Table 5 : 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

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
(previously known as RHB Sakura Merchant Bankers). It is for distribution only under such circumstances as may be permitted by applicable law. The opinions and
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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.

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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