TANJONG PROFITS TO RECOVER FOR 2009/10 ... May 2009

TANJONG PLC which reported weaker earnings for FYE Jan 2009 has underlying fundamentals and business intact.

ONE-OFF WINDFALL TAX & WRITE-OFFS The 80.4% and 16.4% declines in Net Profit for 4Q-FY09 were due to various one-off items such as the Windfall Tax imposed in 2008 when when crude oil prices hit an all-time high. The tax, originally an annual levy intended to help defray the rising costs of generating electricity, was eventually turned into a one-off payment.

TANJONG paid RM85m in total Windfall Taxes in FY09. This resulted in sharply lower earnings for its local power assets, which also took into account another RM84m or so in Development Costs Writeoff and major overhaul expenses. Earnings should normalise in the current financial year, barring further extraordinary provisions.

Net Profit should recover sharply in FY10. INSIDER ASIA estimates Net Profit at RM634.9m, up from RM463.8m in FY09, or equivalent to about 157.4 sen per share.

DIVIDENDS UNCHANGED
TANJONG kept Total Dividends unchanged at 90 sen per share in FY09 despite the drop in profits. Interim Dividend of 17.5 sen per share will trade ex on Apr 22, 2009 and Final Dividend of 20 sen per share trades ex on Jul 29, 2009. INSIDERASAI expects dividends to grow to about RM1 per share in the current financial year in line with the more robust profits. This will translate into a higher-than-market average yield of 7% at the current share price.

NEW POWER ACQUISITIONS
Power will remain the Company's largest earnings generator and main growth driver. TANJONG is continuously on the lookout to acquire new power assets, both greenfield and brownfield projects, locally and overseas.

CAPACITY & AGREEMENTS
The Company has expanded capacity in the region, raising its effective capacity from 1,490MW to 3,951MW over the past four years. TANJONG is now one of the biggest independent power producers (IPPs) in the region with strong presence in Egypt and Bangladesh. Any new acquisition will result in a steep increase in earnings, which are sustainable throughout the duration of the power purchase agreement that usually ranges from 15 to 20 years.

All of its power-generating plants have long-term power purchase agreements - including fuel cost pass-through provisions - with the various state utility companies. In other words, the power earnings are predictable, steady and carry relatively low risks.

NUMBERS FORECAST BUSINESS
Similarly, the numbers forecast totalisator (NFO) business is also relatively recession-proof. Despite the fewer number of draws - 161 compared to 167 in FY08 - earnings before interest and tax were marginally higher in FY09, thanks to higher sales per draw as well as lower prize payout.

Sales per draw grew by an average of about 1.9% in FY09 - and are estimated to rise by another 1.5% in the current financial year. Although earnings could still be affected by the luck factor, overall profitability should remain fairly steady over time.

PROPERTY DIVISION
TANJONG's property arm is another low-risk business, its earnings consisting primarily of rental incomes from Menara Maxis, a 49-storey prime office building in KLCC. The building is fully occupied, with about two-thirds of the floor space rented to TANJONG and its affiliated companies. Menara Maxis was recently revalued at RM650m - the revaluation gains of about RM100m were recognised in TANJONG's FY09 results.

TROPICAL ISLANDS RESORT PROJECT IN GERMANY
INSIDERASIA expects the 'Tropical Islands' resort business in Germinay to improve, going forward. The resort achieved positive EBITDA (earnings before interest, tax and depreciation) in FY09. TANJONG is looking to widen its onsite accommodation facilities, though multiple joint ventures, to further enhance its appeal as a longer duration holiday destination. Currently, most of its visitors are day-trippers from surrounding areas.