This article first appeared in The Edge Malaysia Weekly on June 12, 2017 - June 18, 2017

IT is understood that Genting Power, a unit of Genting Bhd, is looking to build another coal-fired power plant with a capacity of 680mw in Banten, Java. This is in addition to its 660mw coal-fired power plant there — via its 55% joint venture PT Lestari Banten Energi — that started operations recently.

Asked for more details about the proposed new plant, Genting says it has “no comment at this juncture”.

It is unclear whether the terms and investment for the 680mw project will be similar to those for its 660mw plant — Genting’s maiden power venture in Indonesia. However, analysts believe it will be, given that it will be in the same area and will have similar capacity.

As the 660mw plant started operations in end-March, its revenue contribution will only commence from the second quarter of this year. The cost of this plant, for which construction started in 2013, was US$1 billion. It operates on a 25-year power purchase agreement on a build-operate-transfer basis.

Genting Power is parked under Genting Energy, which oversees the power and oil and gas businesses of the group.

Last year, Genting effectively had interest in 964mw of net attributable power generation capacity. This was through jointly controlled operations in China and associates in India.

Genting’s total net attributable operating power capacity is expected to increase to over 2,000mw this year, following the commissioning of the 660mw plant in Banten and its 1,343mw Meizhou Wan Phase II in China.

In FY2016, the power segment’s revenue dropped 18% to RM1.01 billion from a year earlier.

Nevertheless, its adjusted earnings before interest, taxes, depreciation and amortisation (Ebitda) more than doubled to RM124.2 million.

In its 2016 annual report, Genting says the lower revenue from the power division was due mainly to lower construction revenue recognised from the lower percentage of completion of the 660mw power plant as it approached completion and commissioning. It adds that the higher Ebitda was due mainly to lower construction costs incurred on the power plant in the current financial year.

Twentieth Century Fox theme park opening moved to 2Q2018

Compared with its other businesses, the power segment continues to be a small contributor for now. Its largest contributor remains the leisure and hospitality segment, which registered adjusted Ebitda of RM5.35 billion, representing 87% of Genting’s total adjusted Ebitda of RM6.12 billion in FY2016. Revenue stood at RM16.5 billion.

Analysts do not expect the tourism tax, which will come into effect on Aug 1, to have much effect on Genting’s leisure and hospitality business in Malaysia — parked under its 49.3%-owned Genting Malaysia Bhd.

“About 30% of visitor arrivals to the highlands are hotel guests and the rest are day trippers. And about 70% of its 10,000 rooms are under the three-star category, which means only a RM5 tax per room per night. It is unlikely that the tax will impact the demand much,” says an analyst who covers the stock.

The tourism tax of between RM2.50 and RM20 per room per night is levied depending on the rating of the rooms. The tax for five-star accommodation is RM20; four-star, RM10; and one to three-star, RM5. For non-rated accommodation, including budget hotels, it is RM2.50.

On a different note, it is understood that the opening of Genting’s Twentieth Century Fox theme park, which was originally slated for this year, has been moved to the second quarter of next year.

Maybank Investment Bank Research and AmResearch, in recent reports, say the theme park is now scheduled to open by or in 2Q2018.

In the first quarter ended March 31, Genting’s revenue rose to RM4.768 billion from RM4.703 billion. Despite the marginal increase in its top line, the group’s profit before tax soared 168% to RM1.456 billion from a year before.

The increase was due mainly to higher Ebitda and a gain of RM302.2 million recognised from the completion of the disposal of Genting Singapore PLC’s 50% interest in its associate, Landing Jeju Development Co Ltd.

Maybank IB Research notes that Genting’s 1Q2017 earnings disappointed but Ebitda still grew to a three-year high, thanks to Genting Singapore and Genting Plantations.

The research house raised its FY2017 to FY2019 Ebitda estimates for Genting by 3% to 5%.

“In our view, Genting still has plenty of catalysts. Utilising higher target prices for Genting Malaysia (RM5.40 versus RM5.30 previously) and Genting Singapore (S$1.25 versus S$1.10 previously) and an unchanged 21% discount to SOP/sh valuation (20-year mean), our new SOP-based target price is RM11.55 (+9%). In our view, Genting’s current valuations are attractive at -1SD to LT mean,” it notes in a May 30 report.

The research house lists the reasons to be optimistic about Genting’s future: “At Genting Malaysia, Sky Plaza will contribute on a full-quarter basis from 2Q2017; Genting Highlands Premium Outlets, 50%-owned by Genting Plantations, ought to boost visitor arrivals when it opens in mid-June; and Theme Park Hotel will grow its total room inventory about 4% when it reopens by year end. At Genting Singapore, the redemption of its S$2.3 billion perpetual bonds in September/October will boost Genting’s earnings by about RM120 million per annum going forward. Banten IPP will also contribute on a full-quarter basis from 2Q2017.”

Meanwhile, AmResearch maintained its “sell” call on Genting and lowered the RNAV-based fair value of the stock to RM9.65 from RM9.86.

“We have lowered Genting’s 1QFY2017 net profit by 7% to account for Genting Malaysia’s weaker earnings and a higher minority interest at Genting’s level. Genting is currently trading at FY2017F fully diluted PE of 23.5 times and FY2018F fully diluted PE of 23 times. Genting’s 1QFY2017 core results were below our earnings forecast and consensus estimates as Genting Malaysia’s net profit was below expectation. Included in Genting’s results was Genting Singapore’s exceptional gain of S$96.3 million on the disposal of its stake in Resorts World Jeju,” it states in a May 30 report.

Genting’s share price hit a 52-week closing high of RM10 on June 1. It closed at RM9.75 last Thursday, still up 31% from its 52-week closing low of RM7.453 on Nov 14, 2016.

The consensus 12-month target price of analysts polled by Bloomberg is RM11.14. Thirteen analysts have a “buy” call on the stock, three have a “hold” and two, a “sell”.

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