TANJONG plc's share price skidded 60 sen or nearly 6% to a month-low of RM9.60 yesterday in a negative market reaction to the news of its intention to venture into the holiday resort business in Germany.
With scant information available, cautious investors feared Tanjong would need to invest a large sum and the project might have long gestation period before it could be profitable, dealers said.
Some have even questioned the viability of operating a tropical island resort against the backdrop of weak economic conditions in Europe, particularly in Germany, which is seen to be on the brink of recession.
Furthermore, the project is far from Malaysia and in a market that Tanjong may not be familiar with.
Nonetheless, dealers said inves-tors were making an execuse to take profit as the stock had gained sharply from the RM8.60-level in March.
Most analysts commented it was too early to judge the acquisition because the group did not disclose the details.
They do not rule out the possibility that Tanjong might get a reasonably good deal given that this could be a distress sale of assets.
And the group might be offered incentives, such as lower taxes, should Germany be convinced that the resort could draw tourists from other parts of the continent and boost its economy, analysts said.
Tanjong announced last Friday it submitted a conditional bid to the liquidator of CargoLifter AG to buy 500ha in Brand, near Berlin.
It is also bidding for other assets of CargoLifter, including a large free-standing hangar on the property. But the bid price was not disclosed.
A number of analysts have downgraded the stock from 'outperform' to 'neutral' or 'hold', the re-rating due to the fact that the stock had outperformed the KLSE Composite Index in the past three months and was nearing the fair value analysts had earlier pegged it at.
The upside potential for the stock is limited,'' said an analyst. Tanjong's share price hit a ten-month high of RM10.50 last Thursday.
Analysts said Tanjong's earnings would remain steady, given the power purchase agreements it had signed with Tenaga Nasional Bhd.
But they do not expect its gaming business to offer exciting growth in the near term because it is a rather tough fight to regain market share from the illegal operators.
Did you find this article insightful?