Tanjong Plc, Measat, Ananda Krishnan and Valuations

Tanjong and Measat - The cynical ones would be harping on the fact that another two listings being taken off the board, thus eroding the already decimating foreign interest in Bursa listed stocks. But you cannot just judge things by looking at the surface.

Tanjong has a lot of capital to raise to move into power plants in a big way, plus it has to sweep some rubbish under the carpet (the German resort venture). Tanjong as it is also holds other assets that probably will need to be shed and restrategised.

Obviously its a valuation thing as well. Its listed and available to foreign investors for the longest time, so, foreign investors will need to shut up if they wished to criticise that important counters are taken off the board - they obviously did not "invest enough" when these companies were still listed for the longest time. So don't come bitching if its taken private, and at a decent premium too.

The offers are very good, no shafting of minority shareholders, unlike the more questionable case when Maxis was privatised. I still expect Tanjong to come back to the board but probably in a more focused way, mainly in power plants. I think most will appreciate that investors are more willing to accord a higher valuation if its focused.

Measat is better off taken down as it promises so much but has under delivered, privatise it and make things happen, then relist again. Ananda could very well have taken Measat private at a much lower level, so minority shareholders should be happy.

On the question of valuations, is it that listed companies in Malaysia do not get a proper valuation? If you take the market average PER, nobody will say that Malaysia is grossly undervalued. Obviously its only in the top 30 stocks. That being the case, it also means that the broader market might be overvalued as well.

Let's concentrate on the top 30, free float is a major consideration, we need to keep releasing shares, GLCs and owners need really to own less than 40%. Its the mindset that crushes us, look at the biggest companies in the world, nobody cares about the 33% controlling interest. Look at Citigroup, Procter Gamble, even Microsoft - the largest shareholders hold less than 10%. If you can get away from "control issues", then you will use your company new shares issuance to grow more aggressively via M&A when share price is not cheap ... among other things.

Corporate strategy and governance - while we may have qualified people at the top, many lacked the vision and execution ability (CIMB, YTL Power and IOI are exceptions). Investors do not believe that those at the top have the proper leadership, "control", insightful growth strategy to move ahead. Many investors still question how many of the CEOs are still beholden to "vested interests" - how to be convinced??? Hence the question is not whether we "hire really good professionals" but whether we are liberal and professional enough to allow them to do their jobs - mindset, mindset ...

Looking Back On Returns

For the first quarter of 2009 I don't think I recommended to look at any one stock as I was not convinced of a rally or a substantive run. The good thing about blogging is that your views are all there to be examined, scrutinsed and criticised ... but it also allows you to reflect and note how your views evolve. Like a diary, the most notable postings started around April 24 this year (can go and check). Its fun to look at how things have turned out, bearing in mind that my assertion that stocks I like should have at least a 30% upside within 6 months, so far so good. If I can get a batting average of 65%, I am happy. There are not many runs in a year for a market like Malaysia, once its there, you have to seize the day and then exit when things are looking dowdy. Usually you can count on 2 runs a year lasting anywhere from 4 -15 weeks each time. Bull markets do not make us smarter, it makes picking winners easier.

FBM 100 Gainers and Losers In August 2009
Top 20 Gainers TR
IJM LAND BHD 23.13%
MULTI-PURPOSE 20.93%
SARAWAK OIL PALMS 18.57%
PROTON HOLDINGS BHD 12.13%
SUNWAY CITY BHD 11.51%
TITAN CHEMICALS CORP BHD 11.32%
MAH SING GROUP BHD 9.78%
BOUSTEAD HEAVY INDUSTRIES CO 9.66%
LINGKARAN TRANS KOTA HLDGS 7.57%
AXIATA GROUP BERHAD 7.14%
SELANGOR PROPERTIES BERHAD 7.14%
AEON CO (M) BHD 6.67% UBG BHD -4.94%
KUALA LUMPUR KEPONG BHD 6.40%
TAN CHONG MOTOR HOLDINGS BHD 5.95%
EON CAPITAL BHD 5.60%
AFFIN HOLDINGS BERHAD 5.56%
GUINNESS ANCHOR BHD 5.48%
AMMB HOLDINGS BHD 4.78%
PETRONAS DAGANGAN BHD 4.78%
PPB GROUP BERHAD 4.63%

Source: Bloomberg Note: TRs (total returns), CG (capital gain) & DY (div yield)

Looking Back

April 24 - Confirmation of A Bull Run For Bursa
April 24 - Stocks & Sectors I Like As CI Breaches 1,000 (Property: SP Setia, UEM Land, even Talam, Sunway City, even MK Land. Financials: AMMB, EON Cap). ... safe to say that these property and financial picks outperformed the market substantially ... so far
April 27 - Talam Coming Out Of PN17 0.08 ... had a good run for a while even at 0.14 or 0.15 at some point I believe, still the run should come when its officially out of PN17
April 28 - MK Land Is Pretty Oversold 0.28 ... now at 0.40 but went as high as 0.47, we got our 30% or more
May 1 - Sell In May & Go Away " History repeats itself for a reason, because they do, people never learn and they keep repeating their actions and decisions time in time out. This is the same posting I did 4 years back in May 2006, and repeated this in May 2008, so for all intents and purposes, I should also repost this for May 2009. Personally, I don't think this May-August will be a down period."
May 5 - Stock Picks For A Nice Trade ... these were ok performers, not spectacular, its for a quick trade, if it works good, if not, get out...
SAAG long up to 0.29
Sapuracrest long up to 1.24
IOI Corp long up to 4.50
Kulim-WB long up to 3.32
Kulim long up to 6.00
May 7 - Go Long On The Brokers .. these were good runs, TA went to 1.27 (now 1.20), Affin went to 2.04 (now 1.88), ECM went to 0.78 (now 0.63), HDBS went to 1.75 (now 1.58), Kenanga went to 0.75 (now 0.65), OSK went to 1.58 (now 1.39)
TA long up to 1.03
TA-WB long up to 0.06
Affin long up to 1.77
Affin-WC up to 0.14
ECM long up to 0.66
HDBS long up to 1.45
Kenanga up to 0.68
OSK long up to 1.38
May 29 - Why I Like Pelikan 0.98 ... possibly the best call so far, now still at 1.52, we got our 30% here
June 4 - A Timely Look At B-Land & B-Toto 3.26 / 4.74 .. both did well, especially B-Land
June 11 - Tanjong, This One Can Buy & Hold 13.00 ... now at 15.82, up 21% so far, a bit more to go to get our 30%
June 11 - Whoops! There It Is (GenM) 2.90 ... now at 2.79, not good, I would cut now ..
June 23 - I Like Green Packet At Current Levels 0.70 ... very good entry levels at 0.70, now share price still at 0.705 but I get 1 right and 1 warrant basically FREE for every 2 shares, great return, easily way past 30%
July 13 - Market Commentary - "I don't like many stocks now as I think markets do look tired, but if you point a gun to my head to force me to buy one stock to hold till rest of they year, I would probably say E&O" 1.04 ...if anybody read this closely, they would have made a bundle, went ballistic today to a high of 1.52
July 17 - Why I Would Buy Astro Now 3.62 .. 3.43 now, news did not filter out as I had hoped, wishy washy developments, sell
July 24 - Why I Am Keen On MPHB Now 1.58 ... 2.11 now, we got 33%, enough
August 4 - Why I Like DRB Hicom 1.13 ... went towards 1.30 but fizzled out, still very keen on this, can hold on
August 12 - Why I Like IJM Land 1.81 ... went to 2.05, now at 1.98, will wait for my 30%
August 21 - Why I Like Bumi-Commerce Bank 10.30 ...recent call...
August 27 - Why I Like QL Resources 3.34 ...recent call ...

The above were views on stocks and sectors that I like, not an invitation to buy or sell. It serves as a blogging activity of my investing thoughts and ideas, this does not represent an investment advisory service as I charge no subscription or management fees (donations are welcomed though). The content on this site is provided as general information only and should not be taken as investment advice. All site content, shall not be construed as a recommendation to buy or sell any security or financial instrument. The ideas expressed are solely the opinions of the author. Any action that you take as a result of information, analysis, or commentary on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions.

p/s photo: Fiona Xie

Tanjong, This One Can Buy & Hold

".... The Edge Weekly reported over the weekend that the time is still not right to list Tanjong Plc’s power assets separately and that it could be two years before the company takes that path, if at all. A source close to the company said, “It could be a foreign or dual listing... but that is not a priority right now”. The company is, however, looking at numerous ways to increase cashflow and strengthen its balance sheet, including the sale of its gaming operations. It is understood that there is currently no attractive offer on the table for Tanjong’s gaming division. The source would not comment on speculation that Tanjong may “swap” its gaming assets for Genting Bhd’s power assets ...."

If you consider the amount of possible corporate actions circling Tanjong, ... such as the listing of power assets as a separate entity, selling the gaming operations, swapping the gaming with Genting in exchange for power assets ... you would be shocked to learn that Tanjong is at the year's low when every other stock is at or near the year's high. It could be that major institutional investors are fed up of playing the waiting game for these corporate exercises to eventuate.

My view is that they will need to spin off the power assets into a new entity as that is a stable, dividend play, and will require a strong funding plan to grow. Listing is a necessity but not at current market valuations. So that will be when market is past the 1,300 level at least.

The swapping of gaming assets for Genting's power assets is a new tack, and one that is highly attractive. Genting is on the path to be a pure gaming company, and the swapping exercise is a win-win for both sides. It would be wonderful for Genting to get the 1+3D and racing totalisator business, but I tell you, managing the local race clubs with incur the wrath and political fiefdoms of the club board of directors, who make the Sopranos look like Barney.

Genting's power assets are worth about RM2bn while the 1+3D business is roughly doubled that at RM4bn. Even so, I think Genting would be more than happy to pay a premium to make the swap workable.

The main issue dragging Tanjong lower is the Tropical Island misadventure. Sell it or turn it around swiftly, don't let it hang around with promises or restructuring and better times ahead because the recession in Europe has basically killed that plan for the forseable future. Losses at its leisure division narrowed from RM59mil in FY08 to RM29mil in FY09 on the back of higher visitorship at Tropical Islands Resort in Germany. Turnover of Tropical Islands Resort strengthened from RM103mil in FY08 to RM141mil in FY09 underpinned by new attractions such as the rainforest sauna.Take the pill and move on. Write the whole thing off already, investors are basically valuing the thing at around RM130m-RM150m in its entirety, its so small relative to its overall business, the longer it stays on the books, the bigger the pimple in the mirror even if its a tiny one.

The windfall tax levy was another negative. Tanjong recognised a windfall tax of RM85mil in FY09. Included in Tanjong’s FY09 results was a revaluation surplus of RM100mil relating to Menara Maxis. Menara Maxis has been revalued to RM650mil or RM925/sq ft from RM550mil previously. Menara Maxis was last revalued in FY07. Investors do not like earnings propped up by revaluations (as it is not sold or going to be sold anytime soon) and the windfall tax (which erodes the attractiveness of the business as a whole as earnings are capped).

Gross DPS for FY09 came up to 90 sen, the same as FY08. That would be the saving grace for the stock, and at RM13.00, one should accumulate Tanjong with its dividend yield in mind. The corporate actions will take time to happen, so Tanjong is clearly for those who want to buy good shares with decent dividends and good potential upside when any of the mentioned corporate actions eventuate. Hard to see the stock going to RM12.00 looking at the dividend, but don't expect 20% gains within a short time.


p/s photos: Lyra Virna