CIMB raises Tanjong’s target price to RM19

Written by Financial Daily
Friday, 02 October 2009 10:47

CIMB Research has maintained its outperform recommendation on Tanjong plc at RM15 while raising its target price for the stock to RM19 (previously RM18.60), as higher-than-expected domestic power sales and a better-than-expected luck factor for the gaming business took Tanjong’s annualised 2QFY10 core results 13% above its estimate and 15% ahead of consensus.

However, the research house said there was no surprise in the second interim gross dividend of 17.5 sen per share, which was consistent with last year’s rate and its own projection.

“We are raising our FY10 earnings estimate by 4% for higher local power earnings and a lower prize payout while nudging FY10-FY11’s numbers up by about 1%,” it said.

It said the company’s core divisions outperformed, adding that Tanjong’s 1HFY10 earnings before interest and tax (Ebit) climbed 28% year-on-year (y-o-y) on the back of 14% revenue growth.

Tanjong’s key power division led the y-o-y uptick, with a 29% y-o-y rise in earnings due to the absence of maintenance works and windfall tax for its domestic arm.

CIMB said Tanjong’s earnings from the gaming division rose 8.6% y-o-y, helped by a more favourable prize payout of 62% for 1HFY10 versus 65% for 1HFY09, and seven extra draw days.

“On the flip side, seasonal weakness prevailed at Tropical Islands (TI), as reflected by the widening of operating losses from RM600,000 in 1Q to RM3.7 million. However, its year-to-date losses of RM4.3 million are still better than the RM15.5 million loss recorded in the same period last year,” it added.

It also said the recent entry of Magnum’s new 4D Jackpot could cast a short-term cloud over Tanjong’s number forecast operator (NFO) business.

“But we expect Tanjong, the smallest NFO player, to at least negotiate for a replacement game in an effort to compete better with its legal peers.

“For TI, 2Q’s seasonally weak numbers reinforce the importance of making vacation homes available to tap into the more sustainable overnight guest market,” it said.

CIMB Research said Tanjong remained an outperform, with the key share price triggers being a new or replacement NFO game; a sustainable turnaround at TI; more earnings-enhancing mergers and acquisitions; and a potential separate listing of its power arm over the medium term.

Tanjong added eight sen to close at RM15.08 yesterday.