INDEPENDENT power producer Tanjong Plc, trading close to a historic low price-to-earnings ratio of 8.1 times, is expected to post stronger earnings for its fourth quarter ending Jan 31.
The counter usually trades at its 10-year average of 13.5 times.
OSK Research in an update report said the company would show improved performance going forward, emanating from the absence of windfall tax levy.
This was fully provided for in the third quarter as well as the expected stronger achievement from its number forecast operations (NFO) coinciding with the upcoming Chinese New Year festive season.
“These factors would partially mitigate the short fall in our full-year earnings expectation,” the report said. The company registered a 44.5% drop in net profit for the third quarter ended Oct 31, partly due to a charge of RM55mil related to a one-off windfall levy imposed on its Malaysian power plants.
Gross sales proceeds from the NFO business also dropped by 4% to RM1.46bil from RM1.52bil due to fewer draws being conducted during the period.
According to Aseambankers, with a manageable net gearing of 132%, Tanjong would be able to borrow another RM3.6bil for more power acquisitions in the region amid potential fire sales by players affected by the ongoing credit crunch.
The power division, which remains the main driver of growth for the company, saw its revenue for the third quarter jump 42.6% to RM986.5mil mainly due to contribution totalling RM176mil from its Globeleq Ltd power plants in Egypt, Bangladesh, Pakistan and Sri Lanka which were acquired in November last year.
As for its leisure division, its domed recreational facility, Tropical Island, in Berlin, Germany, continued to register operating losses of RM12.9mil for the third quarter.
However, this represented a 57% improvement from the RM38mil loss in the previous corresponding quarter, mainly attributed to lower marketing expenses, higher average spend per head and stronger visitor arrivals.
OSK Research opined that Tropical Island may benefit from the current economic downturn, whereby more holiday travellers in Europe may opt for a cheaper domestic alternative.
Aseambankers noted that Tanjong could potentially unlock its value via the disposal of its gaming divison as well as privatisation in the near term.
“Even if these do not materialise, the stock still offers good value proposition,” the bank-backed brokerage said. Both Aseambankers and OSK Research have a “buy” recommendation on the counter with a target price of RM17.60 and RM18.60 respectively.
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