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1QFY11 : Safe harbour in this bay
• Within expectations
Tanjong recorded 1QFY11 net profit of RM177.2m (-7% y-o-y) which was within expectations as it comprised 25% of our earnings estimate and
26% of consensus estimate. 1QFY11 revenue of RM945.8m (-3% y-o-y) was also within expectations at 24% of our FY11 estimate. The 1QFY11 DPS of 20 sen less 25% tax (1QFY10: 17.5 sen less 25%) declared was a pleasant surprise given the y-o-y easing in earnings.
• RM and gaming weighed on earnings
1QFY11 power generation EBIT declined 10% y-o-y to RM238.4m due to the stronger RM against the USD which caused its overseas power plants to contribute RM15m less and non-recurrence of RM10m in warranty claims received in 1QFY10. 1QFY11 gaming EBIT dipped 24% y-o-y despite 2 additional draws and below theoretical prize payout ratio of 63% due to 9% poorer NFO sales per draw and additional special contributions (3 additional special draws).
• Trimming earnings estimates
Sequentially, 1QFY11 net profit surged 54% q-o-q because of the lower prize payout ratio of 63% (4QFY10: 69%) and improved visitorship and
cost control at Tropical Island. At the theoretical prize payout ratio of 65% to 66%, we do not believe 1QFY11’s results will be repeated in 2QFY11. Also, we trim our earnings estimates to reflect a stronger USDMYR exchange rate of RM3.30 (RM3.50 previously). The net impact is to trim our earnings estimates by 12% p.a.
• But Buy on weakness
Despite trimming our earnings estimates, we tweak our DCF based TP higher by 3% to RM18.66 (previously RM18.08) for housekeeping changes post the release of its latest annual report. Coupled with an expected 75.8 sen net DPS for FY11, we expect Tanjong to yield 11% returns. Thus, we upgrade Tanjong from Hold to Buy. Going forward, re-rating catalysts include securing a new lotto game and overseas power plants. At only 0.9x net gearing, Tanjong is able to gear up to embark on M&As. We expect low beta and high dividend yielding stocks like Tanjong to outperform in volatile markets.
• Within expectations
Tanjong recorded 1QFY11 net profit of RM177.2m (-7% y-o-y) which was within expectations as it comprised 25% of our earnings estimate and
26% of consensus estimate. 1QFY11 revenue of RM945.8m (-3% y-o-y) was also within expectations at 24% of our FY11 estimate. The 1QFY11 DPS of 20 sen less 25% tax (1QFY10: 17.5 sen less 25%) declared was a pleasant surprise given the y-o-y easing in earnings.
• RM and gaming weighed on earnings
1QFY11 power generation EBIT declined 10% y-o-y to RM238.4m due to the stronger RM against the USD which caused its overseas power plants to contribute RM15m less and non-recurrence of RM10m in warranty claims received in 1QFY10. 1QFY11 gaming EBIT dipped 24% y-o-y despite 2 additional draws and below theoretical prize payout ratio of 63% due to 9% poorer NFO sales per draw and additional special contributions (3 additional special draws).
• Trimming earnings estimates
Sequentially, 1QFY11 net profit surged 54% q-o-q because of the lower prize payout ratio of 63% (4QFY10: 69%) and improved visitorship and
cost control at Tropical Island. At the theoretical prize payout ratio of 65% to 66%, we do not believe 1QFY11’s results will be repeated in 2QFY11. Also, we trim our earnings estimates to reflect a stronger USDMYR exchange rate of RM3.30 (RM3.50 previously). The net impact is to trim our earnings estimates by 12% p.a.
• But Buy on weakness
Despite trimming our earnings estimates, we tweak our DCF based TP higher by 3% to RM18.66 (previously RM18.08) for housekeeping changes post the release of its latest annual report. Coupled with an expected 75.8 sen net DPS for FY11, we expect Tanjong to yield 11% returns. Thus, we upgrade Tanjong from Hold to Buy. Going forward, re-rating catalysts include securing a new lotto game and overseas power plants. At only 0.9x net gearing, Tanjong is able to gear up to embark on M&As. We expect low beta and high dividend yielding stocks like Tanjong to outperform in volatile markets.
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