Analysts: Focus on stocks with sound fundamentals when Tanjong is delisted
PETALING JAYA: Most market analysts believe that the delisting of Tanjong plc, expected to be completed by the end of next month, will see investor interest swinging to other locally-listed power stocks with sound fundamentals.
Tenaga Nasional Bhd (TNB) and YTL Power International Bhd are their picks in this instance, although they believe interest will be slanted more towards the former.
“The rationale is that TNB is a blue chip, with consistent dividend payouts,” said Kenanga Investment Bank research head Yeonzon Yeow.
Analysts also pointed to the national utility company as a proxy to the country’s economic growth, and they contended that TNB had good potential upside from an impending tariff hike.
Furthermore, they said, TNB was considered cheap at the moment. The counter is presently trading at an undemanding multiple of around 12 times forward earnings for financial year ending Aug 31 (FY10) as well as FY11, compared with a three-year average of 14 times. Return-wise, TNB’s average dividend yield for FY10 and FY11 is expected to range between 2% and 3%.
In this aspect, if it was for higher dividend yield, YTL Power had the upper hand, another head of research from a local investment bank argued.
The independent power producer’s average dividend yield dividend yield for the financial year ended June 30 (FY10) and FY11 is likely to be around 6%.
As for regional power plays, the average dividend yield is estimated to be below 3% for 2010 and 2011, while valuation-wise, they are trading at around 20 times forward earnings for 2010, and around 14 times for 2011.
Analysts estimated Tanjong’s average net dividend yield for the financial year ending Jan 31, 2011 (FY11) at around 4.7%. Net dividend yield for FY10 stood at 4.2%. The counter is trading at less than 11 times forward earnings of FY10.
At the end of last month, Tanjong Capital Sdn Bhd, a special-purpose vehicle set up by Usaha Tegas Sdn Bhd and its allies, made an offer of RM21.80 per share to acquire 53% shares it did not already own in Tanjong.
The counter closed at RM21.26 yesterday, scaling a year-to-date gain of 26.25%. Based on its present stock price, Tanjong’s market capitalisation is valued at RM8.57bil, with an estimated free float of 57%.
Some market players were curious to know where the monies would flow once the company was taken private.
Besides selected power stocks on Bursa Malaysia, some analysts were not dismissing the fact that a portion of the liquidity would also flow to other stocks from different sectors that beared the similar qualities of attractive dividend yields and defensive nature of Tanjong.
Candidates fitting the bill, they pointed out, included toll concessionaires such as PLUS Expressways Bhd, and selected consumer stocks as well as telecommunications companies.
Interestingly, most market punters polled by StarBiz did not think much of the liquidity resulting from Tanjong’s privatisation would flow to gaming stocks. Tanjong is not a pure power play, but it also has exposure to gaming and leisure businesses.
“While gaming has been delivering consistent returns, Tanjong’s main strength is still in the power business and, most likely, that’s the main reason investors hold the stock in the first place,” a market analyst said.
“It’s a rather subjective question. The options are aplenty, and it really depends on the portfolio preference of the fund managers,” an analyst with a foreign-based fund management company explained.
“For us, we are targeting companies with double-digit upside to maximise our returns, while maintaining a healthy balance of defensive holding to cap our risk exposure,” she shared about her strategy once exited from Tanjong.
Meanwhile, some analysts were not discounting the probability of fund managers parking their monies in overseas markets, particularly in power stocks.
“After all, some investors had liked Tanjong for its exposure to overseas power sector,” Kenanga’s Yeow pointed out.
By CECILIA KOK
cecilia_kok@thestar.com.my
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