Well positioned to acquire more power plants
In good times and bad, Tanjong plc, the flagship company of T Ananda Krishnan is well known for its dividend play. This view has not changed despite the challenging economic environment.
In the last financial year, Tanjong paid out 90 sen gross dividend a share. For the current financial year, despite the tough operating environment, it declared 52.5 sen gross for the first three quarters.
Analysts are expecting gross dividends of about RM1.02 in FY2009 ending Jan 31 and RM1.12 in FY2010. That would translate to a gross dividend yield of 7.4% based on Tanjong's current price of RM13.50 — not bad for an independent power producer (IPP), considering that the sector as a whole did not fare well in 2008, following the introduction of a windfall tax in July.
Tanjong had to set aside RM55 million as payment for the windfall tax in FY2009 ending Jan 31. The government however withdrew the windfall tax. Although there is lingering concern that the government could force IPPs into agreeing to changes in the power purchase agreements (PPAs) in the coming years, Tanjong would probably be the least affected of the IPPs.
Given the uncertain regulatory environment and increasing scrutiny of the IPPs' licences, it is not surprising that Tanjong has continued to extend its reach outside Malaysia. It has power plants in Egypt and has acquired Globelaq Ltd, which has power plants in four countries, including Egypt. The Globelaq acquisition, which was completed in November 2007, has contributed to Tanjong's earnings growth of 22% in the current year of operations.
With an operating profit of RM750.3 million for the nine months to Oct 31, 2008, Tanjong has a strong enough cash flow to fund further acquisitions. It has cash and cash equivalents of RM1.2 billion for the first nine months; its short-term borrowings are RM750.3 million.
With asset prices in the power generation sector falling, Tanjong is well positioned to take advantage of the situation by acquiring more power plants. And considering its track record, rest assured that all acquisitions will be earnings accretive, which only means higher payouts. This is more than enough reason for investors to put their money in the stock.
