KUALA LUMPUR: Several international private equity firms and a consortium led by the Cheng family have expressed keen interest to acquire Tanjong Plc’s gaming business although the company controlled by T. Ananda Krishnan is still weighing its options on whether or not to divest the prized asset valued at some RM2.3bil to RM2.5bil.
Sources said many parties had approached the company directly and via banks to express their interest to acquire the gaming assets, although Tanjong had not decided on the divestment route just yet.
“The company was just taken private. It obviously wants to expand the power business. Monetising any of its other assets, including gaming, is contingent on Tanjong’s plan to expand its power business,” said an industry source.
The other assets up for sale in the post-privatisation of Tanjong includes the cinema operation and its German Tropical Islands.
The combined value of those businesses is believed to be about RM2.8bil, which would give a sizeable boost to the cash reserves for Tanjong to expand into power operations.
Although talk on any sale of Tanjong’s numbers forecast operations (NFO) and racing totalisator (RTO) is said to be preliminary, reports indicate that interested parties valued those assets at RM2bil.
If a sale of the business, where gaming is the prized asset bidders are looking at, cannot be struck, then the company should be more than willing to continue leaning onto the unencumbered cashflow from the gaming business.
While divestment is an option for Tanjong, another would be to tie up with some other gaming-related party by partially selling its interest in the gaming business.
“No decision has yet to be made and, as such, talk of Tanjong selling gaming at this point is totally speculative,” a source said.
While no deal has been struck, it is learnt that negotiations for the gaming business of Tanjong have been taking place for months.
“There is a small gap in the valuation between what is offered and asked,” another source said.
One of the main reasons for the sale of the gaming assets of Tanjong is that the presence of those activities within the group prohibits the entry of investors wanting a syariah-compliant business.
In its circular to shareholders, Tanjong indicated that it wanted to tap the Middle East and North African markets together with those in South and South-East Asia to expand the power-generation business.
Owing to this, Tanjong needs to change its corporate structure, which would entail the sale of assets, to facilitate the expansion.
Tanjong’s gaming business would include the NFO, Big Sweep and RTO. The National Stud Farm, which makes a small profit, would also be bundled into the lot.
Tanjong’s gaming arm, Pan Malaysian Pools Sdn Bhd, reportedly has about 24% share of the local market. Berjaya Sports Toto Bhd’s market share is about 40% while Magnum Corp Bhd’s is 36%.
While the NFO business is the cash cow in the gaming business stable, Tanjong has been losing money from its racing operations.
According to reports, the losses from the RTO business could reach up to RM80mil in the current financial year.
The losses arise from a number of causes. It is said that the Selangor Turf Club is profitable but not those in Penang and Perak. Furthermore, the RTO business is hamstrung by annual cash payments to each of the three turf clubs.
Industry watchers said the business, which has been modernised somewhat with the introduction of telephone betting, was lagging behind the illegal business which could source bets from punters through the Internet.
This has proved to be a lucrative avenue for illegal bookies who are said to make around four times what the turf clubs can pull in on any racing day.
Any potential bidder also had to find favour with the gaming industry regulators and a gameplan to deal with the illegal bookies, said an industry watcher.
Foreign bidders will probably not be penalised in the bidding process if they pair up with a local partner with knowledge of the industry. Multi-Purpose Holdings Bhd in a partnership with CVC Asia Pacific Ltd completed the privatisation of Magnum in 2008.
Showing posts with label Tanjong. Show all posts
Showing posts with label Tanjong. Show all posts
Wednesday, October 6, 2010
Thursday, July 8, 2010
Tanjong: Bidding for new power projects
Tanjong plc (RM17.50) is hoping that some of its bids for new power projects will come to fruition over the next few quarters. In the meantime, earnings from its existing power assets are expected to remain relatively resilient, although overseas earnings, donominated mostly in US dollars, are hurt by the stronger ringgit.
Tuesday, April 6, 2010
Tanjong still good for long term investment.
TANJONG plc (RM18.82) is looking to new power projects to drive growth for the company for the foreseeable future.
The company has had a good start in terms of overseas expansion, successfully acquiring power plants with effective installed capacity totalling some 2,461MW over the past few years.
Its biggest investments are currently in generating plants in Egypt and Bangladesh with smaller interests in Pakistan, Sri Lanka and the United Arab Emirates. Having already established a track record in these countries, Tanjong is upbeat on its ability to secure new power projects, especially in the Middle East and North Africa (MENA) region.
Focus on MENA power projects
The MENA region has vast reserves of petroleum and natural gas with a population equivalent to that of the European Union. Electricity demand growth expectations and investment requirements in the power and power/water sector in the region is one of the highest in the world, particularly for members of the Gulf Cooperation Council.
Against this background, Tanjong has aspirations to add some 4,000MW to its power-generating portfolio over the next five years. The company has a relatively strong balance sheet to leverage upon. Its existing power plants generates a cumulative RM1 billion in cashflow annually while the company has over RM1.5 billion in gross cash, some RM1.3 billion of which lies with the power business.
The power arm accounted for over three-quarters of Tanjong's pre-tax profit of RM953.3 million in its latest financial year ended January 2010. Not taking into account any new acquisitions, we expect the business to record steady earnings in FY11 — save for some RM50 million budgeted for major overhaul expenses for two of its power plants.
In short, power will continue to be the largest earnings contributor and key driver for future growth.
Sustained performances from property and leisure
Elsewhere, the property and leisure businesses are expected to sustain earnings in FY11.
The property arm, mainly rental income from Menara Maxis, contributed some RM48 million in FY10, excluding RM22 million in revaluation gains. The building is fully occupied and few surprises are expected on the earnings front.
Similarly, TGV Cinemas is expected to maintain its performance this year. The unit reported operating profit of RM14.8 million in FY10.
Tropical Islands will probably stay in the red but with slightly narrower losses. The resort theme park recorded RM22.7 million in operating losses in FY10, down from losses totalling RM33.9 million in the previous financial year.
Nonetheless, any significant turnaround is likely only possible once more on-site accommodations are available. Tanjong's venture partner has completed 21 villas so far and aims to have another 25 units available by mid-2010. The company targets some 400 units by the end of 2012. On-site accommodation is key to attracting a greater number of visitors from a wider geographical range. Currently, most visitors are day-trippers. Longer stay would also boost the average visitor spending in the resort.
Working to resolve RTO losses
Less positively, operating losses at the racing totalisator (RTO) business widened in FY10, to RM65.8 million from a loss of RM26.9 million in the previous year. Losses may increase further in the current financial year as the company works to resolve issues plaguing the business.
Sales per draw at the numbers forecast business (NFO) too have contracted in FY10. We believe this was due, in part, to the higher number and timing of special draws as well as competition from new games recently introduced by its peers.
Given that another 20 special draws are slated for the current year, the same as that in FY10, sales would probably stay flattish. Operating profit will be dependent on the luck factor and prize payout, which tends to average out at around 65%-66%.
In all, we forecast earnings from the gaming business to decline in FY11, weighed down by bigger losses — estimated at about RM80 million — for the RTO unit.
Still good investment for the longer term
Thus, in the absence for any extraordinary gains/losses, we expect lower profits in the current financial year for Tanjong. Net profit is estimated at roughly RM636.4 million or 157.8 sen per share, down from RM676.8 million in FY10.
Despite the expected earnings contraction this year, we believe the stock is still a good longer-term investment — priced at just about 11.9 times price-to-earnings (P/E) — with better than fair prospects for growth. A new power project would result in a step increase in its earnings base, which would then be sustainable over the period of the power purchase agreement.
Furthermore, Tanjong should be able to sustain its dividend payments, at least, supported by steady cashflow from the NFO business. Assuming gross dividends remain at RM1 per share, shareholders will earn a fairly decent yield of 5.3% at the current share price.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
The company has had a good start in terms of overseas expansion, successfully acquiring power plants with effective installed capacity totalling some 2,461MW over the past few years.
Focus on MENA power projects
The MENA region has vast reserves of petroleum and natural gas with a population equivalent to that of the European Union. Electricity demand growth expectations and investment requirements in the power and power/water sector in the region is one of the highest in the world, particularly for members of the Gulf Cooperation Council.
Against this background, Tanjong has aspirations to add some 4,000MW to its power-generating portfolio over the next five years. The company has a relatively strong balance sheet to leverage upon. Its existing power plants generates a cumulative RM1 billion in cashflow annually while the company has over RM1.5 billion in gross cash, some RM1.3 billion of which lies with the power business.
The power arm accounted for over three-quarters of Tanjong's pre-tax profit of RM953.3 million in its latest financial year ended January 2010. Not taking into account any new acquisitions, we expect the business to record steady earnings in FY11 — save for some RM50 million budgeted for major overhaul expenses for two of its power plants.
In short, power will continue to be the largest earnings contributor and key driver for future growth.
Sustained performances from property and leisure
Elsewhere, the property and leisure businesses are expected to sustain earnings in FY11.
The property arm, mainly rental income from Menara Maxis, contributed some RM48 million in FY10, excluding RM22 million in revaluation gains. The building is fully occupied and few surprises are expected on the earnings front.
Tropical Islands will probably stay in the red but with slightly narrower losses. The resort theme park recorded RM22.7 million in operating losses in FY10, down from losses totalling RM33.9 million in the previous financial year.
Nonetheless, any significant turnaround is likely only possible once more on-site accommodations are available. Tanjong's venture partner has completed 21 villas so far and aims to have another 25 units available by mid-2010. The company targets some 400 units by the end of 2012. On-site accommodation is key to attracting a greater number of visitors from a wider geographical range. Currently, most visitors are day-trippers. Longer stay would also boost the average visitor spending in the resort.
Working to resolve RTO losses
Less positively, operating losses at the racing totalisator (RTO) business widened in FY10, to RM65.8 million from a loss of RM26.9 million in the previous year. Losses may increase further in the current financial year as the company works to resolve issues plaguing the business.
Sales per draw at the numbers forecast business (NFO) too have contracted in FY10. We believe this was due, in part, to the higher number and timing of special draws as well as competition from new games recently introduced by its peers.
Given that another 20 special draws are slated for the current year, the same as that in FY10, sales would probably stay flattish. Operating profit will be dependent on the luck factor and prize payout, which tends to average out at around 65%-66%.
In all, we forecast earnings from the gaming business to decline in FY11, weighed down by bigger losses — estimated at about RM80 million — for the RTO unit.
Still good investment for the longer term
Thus, in the absence for any extraordinary gains/losses, we expect lower profits in the current financial year for Tanjong. Net profit is estimated at roughly RM636.4 million or 157.8 sen per share, down from RM676.8 million in FY10.
Despite the expected earnings contraction this year, we believe the stock is still a good longer-term investment — priced at just about 11.9 times price-to-earnings (P/E) — with better than fair prospects for growth. A new power project would result in a step increase in its earnings base, which would then be sustainable over the period of the power purchase agreement.
Furthermore, Tanjong should be able to sustain its dividend payments, at least, supported by steady cashflow from the NFO business. Assuming gross dividends remain at RM1 per share, shareholders will earn a fairly decent yield of 5.3% at the current share price.
Note: This report is brought to you by Asia Analytica Sdn Bhd, a licensed investment adviser. Please exercise your own judgment or seek professional advice for your specific investment needs. We are not responsible for your investment decisions. Our shareholders, directors and employees may have positions in any of the stocks mentioned.
Monday, December 14, 2009
Tanjong may pay high dividend, says ECM Libra
Tanjong plc (2267), a power producer and gaming company, may pay a high dividend in its final quarter as earnings from its utility business continue to be strong.
ECM Libra, an investment bank, expects the group to pay a full year dividend of RM1.16 for the year to January 31 2010, which is the same amount it paid for 2009.
So far, it has declared total dividends of 52.5 sen for the first nine months of the current financial year.
"We continue to like Tanjong as a defensive stock as well as for a dividend play," ECM Libra said in a research report released yesterday.
A stock is described as defensive if its price does not suffer volatile swings over time and holders enjoy a continuous stream of dividend payouts.
Tanjong's stock has gained about 24 per cent so far this year, underperforming the broader market's 43 per cent gain in the same time.
The group, which also operates a leisure business called Tropical Islands in Germany and the TGV cinema chain, posted a third quarter net profit of RM177.8 million, an 83 per cent surge from the same period last year.
Revenue for the period to October 31 was almost flat at RM985 million.
Its net profit for the full nine months was RM550.7 million, 27 per cent higher than the same period last year.
Tanjong made more money mainly from its power business, driven by its Egypt power plants, as it spent less on plant maintenance.
However, luck was not on Tanjong's side in the numbers forecasting operation as it paid out more prizes in the third quarter against the second quarter.
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So far, it has declared total dividends of 52.5 sen for the first nine months of the current financial year.
"We continue to like Tanjong as a defensive stock as well as for a dividend play," ECM Libra said in a research report released yesterday.
A stock is described as defensive if its price does not suffer volatile swings over time and holders enjoy a continuous stream of dividend payouts.
Tanjong's stock has gained about 24 per cent so far this year, underperforming the broader market's 43 per cent gain in the same time.
The group, which also operates a leisure business called Tropical Islands in Germany and the TGV cinema chain, posted a third quarter net profit of RM177.8 million, an 83 per cent surge from the same period last year.
Revenue for the period to October 31 was almost flat at RM985 million.
Its net profit for the full nine months was RM550.7 million, 27 per cent higher than the same period last year.
Tanjong made more money mainly from its power business, driven by its Egypt power plants, as it spent less on plant maintenance.
However, luck was not on Tanjong's side in the numbers forecasting operation as it paid out more prizes in the third quarter against the second quarter.
Tuesday, September 8, 2009
Tanjong PLC: Resilient laggard with 5% yield
Tanjong PLC: Resilient laggard with 5% yield
• IRB’s probing of IPPs’ tax payment is unlikely to result in negative impact for Tanjong
• Potential upside from new NFO game
• Attractive valuation vs local and regional peers. Maintain Buy with SOP-derived target price of RM19.25.
Minimal impact from tax issue. The Inland Revenue Board (IRB) is checking on IPPs’ tax claims, which may lead to potentially higher tax rates for IPPs. We believe that the check is unlikely to affect Tanjong, and Malaysia power plants account for just 20% and 19% of Tanjong’s FY10-11F net earnings respectively.
Potential new NFO game for Tanjong? Tanjong is the only NFO player that has yet to receive approval from the Malaysian government for a new NFO game in 2009, while Magnum and Berjaya Sports Toto have already received theirs. Near term contribution from the new game is likely to be minimal, but we expect the new game to contribute to revenue in the longer-term, as a potential “jackpot” type game should win over business from the “illegal” betting operators. Improving free cashflow and resilient power earnings will support future dividend payment and potential new acquisitions. We expect net yields of 5% for Tanjong.
Underperformance not justifiable. Tanjong has underperformed the KLCI and local peers with YTD share price appreciation of 18% against 31% for KLCI and average of 21% for local peers. The underperformance is unjustifiable given Tanjong’s resilient earnings, attractive valuations, and potential upside from new NFO games, as well as the prospects of unlocking the value of its power or gaming businesses in the longer term. Tanjong is trading at attractive CY10F PE of 10x against local peers’ average of 13x and regional peers’ average of 16x.
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