Abstract:
· FY09E results preview. FYE Jan-09E results to be announced next week. We expect a 6% Y/Y earnings growth to M$589MM versus consensus 4%. Focus will be on DPS, forecast at 104sen gross (9MFY09: 52.5sen), or net yield of 5.5%. Other areas of focus will be consistency in turnaround of Tropical Island (EBIT positive in 3QFY09), and resiliency of the gaming and power earnings. As at end-FY09E, the NFO business has yet to feel any slow down in normalised top line growth, while power generation profits are likely to show single digit Y/Y growth of 7% despite windfall taxes and major maintenance opex domestically due to full year consolidation of Globeleq profits.
· Forecast cut but earnings still resilient: We cut earnings by 3% for FY09E and 11% for FY10E to factor in a more gradual rather than swift recovery for Tropical Island with the global slow down. We also lowered NFO normalised sales growth (excluding special draws) to a drop of 5.5% in line with trends during the 1998/2001 economic slow down, but an estimated rise in special draws from 3 to 8 over FY09-10E will cushion the impact. The regulated power assets offer steady earnings with FY10E profits to also benefit from lower cost (i.e. absence of windfall tax, major maintenance opex and business development cost of over M$100MM incurred in FY09E), and higher US$ translated earnings from overseas power units due to the 12% ringgit depreciation.
· Maintain OW. Our new Dec-09 PT of M$18.00 (from M$24.00), factors in our earnings cut and a higher cost of equity for the emerging market overseas power assets. Tanjong remains one of the higher Malaysian yield plays offering earnings security and value. Net yield is 6% over FY09-10E, with CY09E PE of 8.6x (historical mean at 12x since 2000) and EV/EBITDA of 6.7x (developing market Asian peers at 4-10x). Key risk is regulatory changes for the Malaysian power assets.
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