This article first appeared in The Edge Financial Daily on July 7, 2017 - July 13, 2017

Genting Malaysia Bhd
(July 6, RM5.76)
Maintain hold with an unchanged target price (TP) of RM5.50: Although we remain optimistic about Genting Malaysia Bhd’s growth prospects that are supported by the progressive launch of the Genting Integrateda Tourism Plan (GITP), we believe the stock offers limited upside at this juncture in view of its strong share price performance.

Genting Malaysia soft launched the Genting Highlands Premium Outlets in mid-June. This marks another key milestone for the progress of its GITP, upon opening the first and second floors of Sky Casino on March 30, which cater to the mass market. The group is planning to open the third and fourth floors of Sky Casino, which are for VIP and gold card members in the third quarter ending Sept 30, 2017.

We expect the number of visitors to improve from 19 million in 2015 to 24 million by 2018, on track to meet its target of 30 million by 2020. The increased visitations, coupled with the potential availability of 300 new gaming tables, are expected to drive its earnings.

Genting Malaysia is one of the dominant global gaming operators with operations covering Malaysia, the UK and US.

Nonetheless, the group’s operations in Malaysia remain its key income contributor. In 2016, Malaysian operations accounted for about 80% of the group’s earnings before interest, taxes, depreciation and amortisation. We expect contributions from domestic operations to be the mainstay of earnings with the launch of the GITP.

The group announced that the total capital expenditure (capex) for the GITP will increase from the initial RM5 billion to RM10.4 billion.

We understand that the total capex for the Twentieth Century Fox World theme park will increase from RM1 billion to RM2 billion. The group will also need to improve infrastructure and accommodation to cater for an expected additional 7,000 new job opportunities in Genting Highlands.

Although additional gaming tables remain a key driver of its growth prospects, we continue to emphasise that sustained increase in visitations will be the key rerating factor to sustain earnings growth. Also, our TP is lower than the consensus as we are relatively conservative in our valuation metrics.

We marginally revise our earnings estimates mainly for bookkeeping purposes. We maintain “hold” with a sum-of-parts-based TP of RM5.50. We believe its current share price offers limited upside potential at this juncture.

Further weakening in consumer sentiment could hurt domestic gaming operations, in addition to negative surprises from its overseas operations. — AllianceDBS Research, July 6