Tanjong (TJPL.KL): Buy

Tanjong (TJPL.KL): Buy: Results In-Line, Expect Better 4Q09

9-month net profit up 7% YoY - Tanjong reported 9-month net profits of RM435m, up 7% YoY following 22% top-line growth, following the Globeleq acquisition in December 2007. Third quarter net profit fell 29% QoQ to RM97m after 1) an additional RM55m (for full RM62m levy) provision for windfall levy; 2) reversal of translation gain of RM29m (estimate); and 3) additional RM10m (estimate) in business & corporate charges. Please refer to Figure 1 for details.

Lower Leisure losses - Though not a major division, it is comforting to see lower losses at the Leisure division on improved contribution from Tropical Island.

Expect higher 4Q09 - The circa RM84m levy and reversal in translation gain are not expected to recur. We expect a stronger 4Q in the absence of these and higher gaming earnings in 4Q09 (i.e., bonus draws and festive sales).

Third interim 17.5 sen dividend - Management has declared a third interim gross dividend of 17.5 sen less 25% tax. The ex-date has been fixed on 31 December 2008 and will be paid on 16 January 2009.

Earnings trimmed slightly and dividend lowered - We have trimmed FY09E-FY10E net profit by 0%-1% to take into account higher business & corporate expenses. We have also lowered FY09E dividend to 90 sen from 100 sen. We expect management to be more prudent in capital management following the windfall levy payment and further deterioration in the economic outlook.

Maintain Buy (1L) - We are maintaining our Buy/Low Risk rating on Tanjong.