JPM: Tanjong Plc: 3Q FY09 profits hit....

Tanjong Plc: 3Q FY09 profits hit by windfall tax levy and rise in NFO prize payouts; Tropical Island turns EBIT positive

9M FY09 net profit rose 7% Y/Y, or at 72% of our full-year forecast (73% of consensus). 9M FY09 operating profit also rose by 7% Y/Y driven largely by additional income from the Globeleq power plants acquired in Nov-07 despite the M$62MM windfall levy on the Malaysian power plants. Below the operating level or at the bottom line, profits were partly boosted by gains from disposal of the group's broadcasting assets in UK, which raised net investment income by 2x to M$48MM for 9M FY09. Tanjong declared a third interim GDPS of 17.5sen, translating to a total of 52.5sen for 9M FY09, up 25% Y/Y.

· 3Q FY09 profits were down 29% Q/Q and 45% Y/Y due largely to one-off items. These included: 1) the balance of the windfall levy of M$55MM for the full year totally provided for in 3Q (M$7MM in 2Q) with no further charge expected; and 2) business and corporate development costs of M$10MM – i.e., bidding and listing expenses for the overseas power division.

· 3Q FY09 divisional breakdown; Tropical Island turns EBIT positive: Stripping out the windfall levy, power division profits rose 11% Y/Y in 3Q FY09 although headline profits were down 15% Y/Y. 3Q FY09 gaming profits fell 39% Y/Y due to fewer draws and an increase in the NFO prize payout from 62% to 66%. This dragged down 9M FY09 gaming profits, which fell 2% Y/Y. Due to improved attendees overall, Tropical Island turned EBIT positive in 3Q FY09, with operating losses for the nine-month period, as a result, down 66% to M$13MM (see Table 2 for divisional breakdown details).

· We assume coverage and maintain OW: Overall, the results did not present significant surprises. Hence, we maintain our earnings estimates and also our full-year GDPS forecast of 96sen, or 72sen on a net basis for FY09E (FY08: GDPS of 90sen, or 67sen on a net basis). We will be meeting with management next week for more details or an update following the recent transfer in coverage of the stock. Our Jun-09 PT is M$24 based on sum-of-the-parts. A key risk to our PT is regulatory changes to the power sector in Malaysia.