Tanjong plc is able to embark on mergers and acquisitions (M&A) given its net gearing at only 0.9 times, says ECM Libra Investment Research.

"We expect low beta and high dividend yielding stocks like Tanjong to outperform in volatile markets," it said in an equity note today.

Tanjong's first quarter financial year 2011 net profit surged 54 per cent quarter-on-quarter because of the lower prize payout ratio of 63 per cent and improved visitorship and cost control at Tropical Island.

"At the theoretical prize payout ratio of 65 per cent to 66 per cent, we do not believe first quarter results will be repeated in the second quarter financial year 2011," ECM Libra said.

ECM Libra said it also trimmed its earnings estimates for Tanjong, to reflect a stronger US dollar/RM exchange rate of RM3.30 from RM3.50 previously.

"The net impact is to trim our earnings estimates by 12 per cent per annum," it added.

With an expected 75.8 sen net dividend per share (DPS) for financial year 2011, ECM Libra expects Tanjong to yield 11 per cent returns.

"Thus, we upgrade Tanjong from hold to buy," it added.

Going forward, re-rating catalysts for the company include securing a new lotto game and overseas power plants.