Luck still on its side...Tanjong’s (RM11.10) third-quarter results for the January 2004 financial year again exceeded our expectations, and similarly due to good luck. Numbers forecast operation (NFO) sales increased 3.4% from the preceding quarter on identical number of draw days, while profits were about 20% higher.
?while sales remained encouraging. Improved NFO sales, which were seen in May–July (up 3% from the corresponding period a year ago) continued into August–October, as Tanjong reported 15% sales expansion with one additional draw day.
This helped cushion profit decline to 4%, following the increase in pool betting duty to 6% from 4% of gaming sales, and royalty to the government from 5% to 10% of gaming pre-tax profits (effective Jan 1, 2003).
One-off boost from power. As for the power division, we note a RM21.4mil one-off boost (5.5 sen per share) from the recovery of loss due to plant outages, without which, profit would have been slightly lower than in the preceding quarter.
About 80% of profits from power. For the first nine months of the January 2004 financial year, power profit, which jumped 40% on higher capacity, accounted for nearly 80% of Tanjong’s pre-tax profit. This helped to offset the 19% decline in gaming profits due to duty increases. Overall group results still beat Surf88’s forecast.
Raises EPS estimate; reiterate buy. We have revised upwards Tanjong’s January 2004 earnings per share estimate by 6%, from 96 sen (which was in line with consensus) to RM1.02.
This is already assuming higher prize payout in the current quarter, while also incorporating seasonally strong sales during the Chinese New Year, which falls towards the end of next month.
Based on revised earnings, the stock trades at about 11 times January 2004 price-earnings ratio (PER), or implied gaming valuation of about 16 times PER after adjusting for power contribution.
Despite the share price having risen about 16% since our recommendation upgrade to “buy'' three months ago, valuation is still supportive to reiterate buy for this well-managed company, which provides more than 3% net dividend yield.
We expect Tanjong to at least match last year’s final dividend payout of 20.2 sen per share in the next results, having paid a tax-exempt interim dividend of 16 sen per share.
Did you find this article insightful?