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 August 2010
MARKET DATELINE

Tanjong plc Share Price

Fair Value
:
:
RM17.58
RM21.80
Major Shareholder Privatising Tanjong At Recom : Trading Buy
(Upgraded)
RM21.80/Share

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 5,325.4 649.9 161.2 161.2 -2.4 10.9 164.8 1.7 0.76 16.3 5.8
2012f 5,403.7 674.3 167.2 167.2 3.7 10.5 171.9 1.6 0.59 15.5 5.9
2013f 5,474.0 678.3 168.2 168.2 0.6 10.5 182.0 1.5 0.44 14.4 6.0
Main Market Listing / Trustee Stock / Non-Syariah-Approved Stock By The SC # Excl EI * Consensus Based On IBES Estimates

Issued Capital (m shares) 403.3

♦ Privatisation. Tanjong Capital, an SPV ultimately owned by Tan Sri T. Market Cap (RMm) 7,089.2
Ananda Krishnan, last Friday offered to buy all Tanjong shares at Daily Trading Vol (m shs) 0.4
RM21.80/share cash. We note that his private companies currently own 52wk Price Range (RM) 14.00-19.12
47.0% and have given their irrevocable undertaking to accept the offer. Major Shareholders: (%)
Tan Sri Ananda Krishnan 47.0
♦ Premium valuations. The offer price is at a 24% premium to Tanjong’s
Capital Group 11.0
last traded price of RM17.58, and at a 19% premium to our SOP fair value
of RM18.30. We note that our fair value includes the gaming business at
15x FY1/12 PER, and the power business at DCF value of RM11.17. Based FYE Jan FY11 FY12 FY13
on our estimates, we note that the offer price values Tanjong’s gaming EPS chg (%) - - -
business at 28.5x FY1/12 PER, assuming full DCF value for its power Var to Cons (%) (2.2) (2.8) (7.6)
business. Alternatively, assuming the gaming business is being valued at
a similar PER to that of Berjaya Sports Toto (its closest comparison) at PE Band Chart
15x, the implied value for the power business would then be RM14.69.
PER = 14x
PER = 12x
♦ The alternatives. We note that a demerger of the non-halal gaming PER = 10x
PER = 8x
business from the potentially high-growth power business would have
addressed some of the issues with regards to raising capital from Syariah-
related funding sources. Another alternative could have been to buy out
the gaming business and leave power within Tanjong.

♦ The cleanest option. However, we believe the privatisation is the

cleanest option due to the potentially deteriorating valuation for the NFO
given the uncertain regulatory environment especially after the recent Relative Performance To FBM KLCI
2%-pt hike in betting duties. A power-only Tanjong would also have faced
an uncertain future with regards to the Malaysia-based IPP assets, given
that Petronas has already warned that there is limited supply of natural Tanjong plc
gas for the power industry.

♦ Risks to our view. 1) Positive changes to NFO regulations; and 2) New

overseas power project. FBM KLCI

♦ Forecasts. No change to our earnings forecasts.

♦ Investment case. In our view, the privatisation will likely go through,

although not without some resistance from investors who want to ride on
Tanjong’s long-term prospects in regional power projects, notwithstanding
the earnings risk from the tough regulatory environment in Malaysia as
highlighted above. Thus, we have raised our target price to the offer price
of RM21.80 and upgraded our recommendation on the stock to Trading
Buy from Market Perform.
David Chong, CFA
(603) 9280 2186
david.chong@rhb.com.my

RHB Investment Bank has been appointed as Joint Financial Advisers to Tanjong Capital Sdn Bhd. Page 1 of 3
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Table 2 : Earnings Forecasts Table 3 : 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 1,427.4 1,429.5 1,425.0 Total installed capacity - Msia 1,490 1,490 1,490
EBITDA margin (%) 28.7 26.8 26.5 26.0 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 1,118.8 1,115.6 1,106.1 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 953.3 902.2 926.1 930.7
Tax (204.7) (180.1) (176.9) (177.0)
Minorities (71.8) (72.2) (74.9) (75.4)
Net profit 676.8 649.9 674.3 678.3
Net excl EI 665.7 649.9 674.3 678.3

Source: Company data, RHBRI estimates

IMPORTANT DISCLOSURES

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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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