LOSS-MAKING: File photo showing the interior of Tanjong Golden Village Cinema. OSK Research notes that Tanjong’s loss-making RTO gaming business along with its non-core assets such as Tanjong Golden Village Cinema and its inability to appeal to Islamic institutional funds have been the key reasons for its valuation discounts to its purer peers.
LOSS-MAKING: File photo showing the interior of Tanjong Golden Village Cinema. OSK Research notes that Tanjong’s loss-making RTO gaming business along with its non-core assets such as Tanjong Golden Village Cinema and its inability to appeal to Islamic institutional funds have been the key reasons for its valuation discounts to its purer peers.
OSK Research Sdn Bhd (OSK Research) yesterday announced that Tanjong Capital, a special purpose vehicle established by Usaha Tegas Sdn Bhd (Usaha Tegas) and its concert parties, presented a cash offer price of RM21.80 per share which valued Tanjong PLC at RM8.8 billion with minority shares valued at up to RM4.7 billion.
“We assess this move as an optimistic manoeuvre as it would give Tan Sri Ananda Krishnan, who owns Tanjong Plc, greater flexibility to restructure the group’s loss-making RTO (racing totalisator) gaming business and non-core assets,” highlighted an analyst from OSK Research
Apart from its holding company discounts, the loss-making RTO gaming business within the group, non-core assets such as Tanjong Golden Village Cinema and its inability to appeal to Islamic institutional funds have been the key reasons for its valuation discounts to its purer peers.
“These further made a strong case for its privatisation after which the group would be able to unlock the embedded value of its core profitable businesses through a potential re-listing of its number forecasting operators (NFO) business as well as its power business as pure listed plays with valuations comparable to those of its currently listed pure power and gaming peers,” commented the research analyst.
The pure gaming NFO entity would command a stable but high dividend yielding appeal, added OSK Research, while its power-listed entity would have a balance of growth and yield appeal.
The research house noted that the group’s net gearing of 94 per cent was relatively low compared with its utility peers ranging between 150 and 200 per cent. This provided compelling acquisition growth potential and hence served as an attractive investment appeal as if it were to list its power assets in the future.
ECM Libra Capital Sdn Bhd (ECM Libra) in a separate report shared this view, quoting that the generous offer price represented a 24 per cent premium to its last price, even higher than its all-time high share price of RM19.12 on April 6 this year. It expected the offer to be well-received.
In addition, OSK Research deemed the offer price of RM21.80 per share as attractive as it would have partially factored in the group’s growth upside from future power acquisitions, for which investors might have to wait at least for a couple of years to realise such upside.
HwangDBS Vickers Research Sdn Bhd (HwangDBS) noted that the privatisation move was made mainly to facilitate Tanjong Plc’s plan to acquire new greenfield power assets.
Last week, Krishnan bid RM662 million for the remaining shares of Measat Global Bhd, while in March this year he announced a RM2.5 billion buyout bid for Astro All Asia Networks Plc. The billionaire also privatised Maxis Communications back in 2007 before relisting its domestic operations last year.
In light of this recent update, OSK Research, ECM Libra and HwangDBS capped a target price of RM17.88 per share, RM17.66 per share and RM19.50 per share respectively for Tanjong Plc.
by Ronnie Teo
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