TANJONG plc is expected to see the entry of a few new faces at board and senior management level. Industry sources say the changes are expected to take place very soon.
Although the changes will largely involve a reshuffling of people within the group itself, it is also believed that K.H. Tan from RHB Sakura Merchant Bankers Bhd may be appointed as Tanjong's chief operating officer (COO). Tan, who resigned from RHB Sakura in February this year, had spearheaded the corporate finance division in RHB Sakura.
And in doing so, it seems very much as if Tanjong is tapping the talents from Powertek Bhd and RHB Sakura – both of which have been taken private by their parent companies.
“There are people moving in,” says the source. When contacted, analysts were not altogether surprised with the imminent appointments. However, they pointed out that Tan's appointment comes as a surprise given that Tanjong is actually considering hiring somebody outside the Usaha Tegas Group.
“Being a very conservative group, they normally hire somebody they have known for quite a while. Three years ago, when their former chief financial officer (CFO) left, they hired the current CFO, Gerard Nathan, from within the Usaha Tegas group. That is the norm,” he says.
Another analyst disagrees. He feels that although Tanjong is approximately 30 per cent-owned by Usaha Tegas, it has always been independent and done its own thing. “I can think of two reasons. One, that this person has had a long relationship with Tanjong throughout his career, and two, maybe his expertise in handling debt instruments. In future, if Tanjong were to expand its power division, it would need further financing anyway,” he says.
The second guess is quite accurate too. RHB Sakura has done many big deals for the Usaha Tegas group in the past and, according to sources, has had a long-standing relationship with the group. The merchant bank also carried out the flotation exercise of Maxis Communications Bhd on the Kuala Lumpur Stock Exchange last year.
“Hence, Tan is no stranger to the group,” says an industry source.
Still, an analyst conjectures that another reason for the new appointments could be due to the fact that the senior management of Tanjong is quite stretched and could be in need for someone to anchor its day-to-day operations.
He also says the changes could also be part of Tanjong's efforts to prepare itself for new business opportunities.
It is widely known that Tanjong is in search of new investments to reduce the reliance on its gaming operations. On the back of declining number forecasting operators (NFOs), and the fact that Tanjong seems to be falling off the radar screens of investors looking for purely gaming exposure, the need to look for new businesses has become particularly compelling for the group.
Already, earnings from gaming are projected to fall to about 25 per cent in financial year (FY) 2004 from just over 40 per cent in FY2002, while power will rise to over 70 per cent from less that 60 per cent during the same period.
For the third quarter ended October 2002, Tanjong posted a net profit of RM92.65 million from RM70.84 million in the corresponding period last year. Revenue also increased to RM608.36 million from RM556.53 million.
The earnings improvement came mainly from the power division, with contributions from its new Panglima Power plant and low maintenance charges.
It has for quite awhile been speculated that Tanjong will be awarded an additional 50 gaming outlets in East Malaysia. This would raise Tanjong's total gaming outlets by 14.4 per cent to 397. Even with the additional gaming outlets, Tanjong will still have the lowest number of gaming outlets, among the three NFOs.
“If Tanjong can really open these outlets, it would be positive. NFO revenue could increase by some RM200 million,” says the analyst from the foreign bank.
Also, since the implementation of new prize payout structure on Jan 1, 2003, analysts are expecting NFOs' sales per draw to grow at approximately 5 per cent year on year.
An analyst from a foreign research says that he expects prize payout for Tanjong's first quarter in 2003 to be slightly higher than the theoretical prize payout ratio.
He gave indications that although NFOs' sales improved in January and February 2003 following the hike in prize payout money, NFOs' sales were still below market expectations and in fact, are displaying a rather flattish trend.
Some market observers attribute this to illegal NFOs' operations, some of which match up to the legal operators in terms of volume and are even contemplating to better the prizes.
Says the analyst from the foreign research: “Some analysts made the mistake of assuming that illegal operators would have no change in modus operandi. That's why some were forecasting a growth of about 6 per cent to 9 per cent. Let's not forget that illegal operators have the benefit of credit and runners to collect money,”
A clearer trend with regard to sales growth from the higher payouts of legal players will only be seen in March, once the Chinese New Year effect for 2003 is no longer present.
Valuation-wise, Tanjong is still considerably cheap compared to its counterparts. Over the last one year, the price has bottomed. On Thursday, the counter closed at RM8.80. Kim Eng Research is recommending a buy. Tanjong's earnings growth from power also makes it attractive.
Analysts contacted were also rather confident that the government would liberalise the NFO industry further, by awarding more outlets, games or decoupled draw days in current year.
This is in view of the government's intentions to create a more level playing field among NFOs. If the government liberalises the NFO industry further, it will benefit Tanjong and Magnum given that they have lower number of outlets and games compared to Berjaya Sports Toto Bhd.
“Overall, it will be positive for the number forecasting industry, as it allows them to compete more effectively with the illegal operators and boost sales,” says the analyst from the foreign research.
Historically, the number forecasting industry chalked up strong double-digit sales growth (27-51 per cent per annum in 1991-1993), before the draw days were aligned to Wednesday Saturday and Sunday on Oct 1, 1994.
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