PP 7767/09/2010(025354)

Malaysia Corporate Highlights

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

New s Upda te
2 July 2010
MARKET DATELINE

Tanjong plc Share Price

Fair Value
:
:
RM17.30
RM18.55
Gaming Hit By A Spate Of Negatives 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 10.5 - 1.9 0.95 18.8 5.8
2011f 5,325.4 676.9 167.9 167.9 1.7 10.3 168.5 1.7 0.75 16.9 5.9
2012f 5,403.7 683.3 169.4 169.4 0.9 10.2 173.9 1.6 0.58 15.6 6.0
2013f 5,474.0 687.3 170.4 170.4 0.6 10.1 183.8 1.4 0.43 14.5 6.1
Main Market Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC # Excl EI * Consensus Based On IBES Estimates

♦ Pool betting duties raised to 8% from 6%. Tanjong announced Issued Capital (m shares) 403.3
Market Cap (RMm) 6,976.3
yesterday that Pan Malaysian Pools, its wholly-owned subsidiary, had
Daily Trading Vol (m shs) 0.4
been notified by the Ministry of Finance of a revision in betting duties to
52wk Price Range (RM) 13.30-19.12
8% from 6% currently. The new rate applies to draws held from Jun
Major Shareholders: (%)
2010.
Tan Sri Ananda Krishnan 30.9
♦ Prize pool to stay unchanged for now. One possible move to mitigate Capital Group 11.0
the higher betting duties is for the NFOs to reduce the prize pool.
However, a lower prize pool could, in turn, adversely affect top line. For
now, we understand that the prize pool is likely to stay unchanged. FYE Jan FY11 FY12 FY13
EPS chg (%) (2.3) (3.5) (3.5)
♦ Spate of “bad luck” for gaming? The increase in betting duties appears Var to Cons (%) (0.4) (2.6) (7.3)
to be yet another unwelcomed development for the gaming division. In
our Strategy Report dated 30 Jun 2010 “Still A Bumpy Ride”, our gaming PE Band Chart
analyst believes that on the back of the recent sports betting licence
incident, there could be potential backlash in the form of more protests by
the opposition parties and the public against any other gaming
liberalisation measures proposed by the Government. While no further PER = 14x
PER = 12x
liberalisation measures have been mentioned as yet, one such measure PER = 10x
that could be affected is the new lotto game that Tanjong had been PER = 8x
planning. Meanwhile, the RTO division has been hampered with escalating
totalisator expenses, although the losses appear to have stabilised.
♦ Dividends. Recall, Tanjong recently declared a first interim gross DPS of
20 sen (1QFY10: 17.5 sen). While we believe Tanjong would keep its Relative Performance To FBM KLCI
quarterly dividends at this level, we think it is increasingly likely that a
FBM KLCI
lower final gross DPS would be declared, as compared to FY10’s 30 sen.
♦ Risks. 1) Stronger RM/US$ would impact overseas power profits; 2)
Higher-than-expected NFO prize payout; 3) Sovereign risk of overseas
Tanjung Plc
power projects; 4) Change in landscape under the National Energy Plan;
and 5) High foreign shareholding (38.8% as at end-May).
♦ Forecasts. We have incorporated the revision in pool betting duties in
our forecasts but have left our FY11-13 topline forecasts and prize payout
assumptions (65% p.a.) for the NFO division unchanged. All-in, we have
lowered our FY11-13 net profit forecasts by 2.3-3.5%.
♦ Investment case. Following the revision to our earnings forecasts, our
SOP-derived fair value has been reduced to RM18.55 from RM19.20. In
our view, a near-term share price catalyst is the addition of new power
assets, although the impact to earnings would depend on whether these
are greenfield or brownfield projects. Our SOP-derived fair value has yet
to reflect such additions. Resolution of the operating losses incurred by David Chong, CFA
the RTO segment would be both earnings and value-accretive, but this (603) 9280 2186
may take time. Thus, our Market Perform call is unchanged. david.chong@rhb.com.my

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Table 2 : SOP Fair Value Calculation

SOP (RMm) SOP/share (RM)
Domestic power DCF @ WACC of 9.7% 3,281.4 8.14
Egypt power DCF @ WACC of 9.5% 637.4 1.58
Globeleq power DCF @ WACC of 10% 586.8 1.46
Gaming @ 15x PER 1,684.3 4.18

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) 7,477.2 18.54
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 1,457.4 1,439.5 1,435.0 Total installed capacity - Msia 1,490 1,490 1,490
EBITDA margin (%) 28.7 27.4 26.6 26.2 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 1,148.8 1,125.6 1,116.1 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 953.3 932.2 936.1 940.7
Tax (204.7) (180.1) (176.9) (177.0)
Minorities (71.8) (75.2) (75.9) (76.4)
Net profit 676.8 676.9 683.3 687.3
Net excl EI 665.7 676.9 683.3 687.3

Source: Company data, RHBRI estimates

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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 information contained herein are based on generally available data believed to be reliable and are subject to change without notice, and may differ or be
contrary to opinions expressed by other business units within the RHB Group as a result of using different assumptions and criteria. This report is not to be
construed as an offer, invitation or solicitation to buy or sell the securities covered herein. RHBRI does not warrant the accuracy of anything stated herein in any
manner whatsoever and no reliance upon such statement by anyone shall give rise to any claim whatsoever against RHBRI. RHBRI and/or its associated persons
may from time to time have an interest in the securities mentioned by this report.

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The research analysts, economists or research associates principally responsible for the preparation of this research report have received compensation based
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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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