Thursday, June 11, 2009
Tanjong, This One Can Buy & Hold
".... The Edge Weekly reported over the weekend that the time is still not right to list Tanjong Plc’s power assets separately and that it could be two years before the company takes that path, if at all. A source close to the company said, “It could be a foreign or dual listing... but that is not a priority right now”. The company is, however, looking at numerous ways to increase cashflow and strengthen its balance sheet, including the sale of its gaming operations. It is understood that there is currently no attractive offer on the table for Tanjong’s gaming division. The source would not comment on speculation that Tanjong may “swap” its gaming assets for Genting Bhd’s power assets ...."
If you consider the amount of possible corporate actions circling Tanjong, ... such as the listing of power assets as a separate entity, selling the gaming operations, swapping the gaming with Genting in exchange for power assets ... you would be shocked to learn that Tanjong is at the year's low when every other stock is at or near the year's high. It could be that major institutional investors are fed up of playing the waiting game for these corporate exercises to eventuate.
My view is that they will need to spin off the power assets into a new entity as that is a stable, dividend play, and will require a strong funding plan to grow. Listing is a necessity but not at current market valuations. So that will be when market is past the 1,300 level at least.
The swapping of gaming assets for Genting's power assets is a new tack, and one that is highly attractive. Genting is on the path to be a pure gaming company, and the swapping exercise is a win-win for both sides. It would be wonderful for Genting to get the 1+3D and racing totalisator business, but I tell you, managing the local race clubs with incur the wrath and political fiefdoms of the club board of directors, who make the Sopranos look like Barney.
Genting's power assets are worth about RM2bn while the 1+3D business is roughly doubled that at RM4bn. Even so, I think Genting would be more than happy to pay a premium to make the swap workable.
The main issue dragging Tanjong lower is the Tropical Island misadventure. Sell it or turn it around swiftly, don't let it hang around with promises or restructuring and better times ahead because the recession in Europe has basically killed that plan for the forseable future. Losses at its leisure division narrowed from RM59mil in FY08 to RM29mil in FY09 on the back of higher visitorship at Tropical Islands Resort in Germany. Turnover of Tropical Islands Resort strengthened from RM103mil in FY08 to RM141mil in FY09 underpinned by new attractions such as the rainforest sauna.Take the pill and move on. Write the whole thing off already, investors are basically valuing the thing at around RM130m-RM150m in its entirety, its so small relative to its overall business, the longer it stays on the books, the bigger the pimple in the mirror even if its a tiny one.
The windfall tax levy was another negative. Tanjong recognised a windfall tax of RM85mil in FY09. Included in Tanjong’s FY09 results was a revaluation surplus of RM100mil relating to Menara Maxis. Menara Maxis has been revalued to RM650mil or RM925/sq ft from RM550mil previously. Menara Maxis was last revalued in FY07. Investors do not like earnings propped up by revaluations (as it is not sold or going to be sold anytime soon) and the windfall tax (which erodes the attractiveness of the business as a whole as earnings are capped).
Gross DPS for FY09 came up to 90 sen, the same as FY08. That would be the saving grace for the stock, and at RM13.00, one should accumulate Tanjong with its dividend yield in mind. The corporate actions will take time to happen, so Tanjong is clearly for those who want to buy good shares with decent dividends and good potential upside when any of the mentioned corporate actions eventuate. Hard to see the stock going to RM12.00 looking at the dividend, but don't expect 20% gains within a short time.
p/s photos: Lyra Virna