KUALA LUMPUR (Aug 3): CGS-CIMB has lowered its target price (TP) for Genting Bhd (GENT) but raised the TP for Genting Malaysia Bhd (GENM), while maintaining its “add” call on both stocks.
 

Despite its higher TPs for subsidiaries GENM and Genting Singapore Plc (GENS), the research outfit said it has lowered its sum of parts (SOP)-derived TP for GENT to RM6.95, from RM7.35 previously, due to maiden assumptions for Resorts World Las Vegas (RWLV).

It reiterated its “add” rating for GENT but adjusted the forecast earnings per share (EPS) for the financial year ended Dec 31, 2023 (FY2023) to FY2025, to factor in the change in GENM’s and GENS’ earnings.

GENT’s FY2023f EPS was trimmed by 1.2%, but the forecast EPS was raised to 16.8% for FY2024 and 16.0% for FY2025.

“Potential re-rating catalysts for GENT would be associate TauRx Pharmaceuticals Ltd (TauRx) receiving Foods and Drugs Administration (FDA) approval for its Alzheimer drug for commercial use, [after] its Phase 3 study received encouraging results in Oct 22, and GENM winning a downstate New York casino licence.”

“Without the FDA approval, we think it would be premature to assign a value to GENT’s 20.3% stake in TauRx,” said CGS-CIM analyst Chong Tjen-Sam in a research note on Thursday (Aug 3).

Chong said GENT remained a credible proxy for a recovery in tourist arrivals from China into Malaysia and Singapore, with 71%-75% of its FY2023f-FY2024f earnings before interest, taxes, depreciation and amortisation (Ebitda) coming from GENM and GENS.

“As it stands, GENT’s 53% stake in GENS is now valued at 24% above its current market value. It also trades at a 58% discount to our RNAV (revalued net asset value).

 “GENT’s discount to the combined market value of its listed subsidiaries’ market capitalisation is 46% as of Aug 2, versus the average of 13% from 2007-2022.

“In our view, the discount is a function of the lacklustre performance of GENM, exacerbated by concerns over the debt levels at RWLV, but we expect it to narrow with improving tourist arrivals, translating into better earnings delivery,”said Chong.

In addition, he also noted that the incremental improvement in RWLV’ performance will be another re-rating catalyst.

“Our SOP now assumes an equity value of RM4 billion, balanced off by net debt of RM11 billion for RWLV.

“According to the Las Vegas Convention and Visitors Authority, visitor volume has returned to pre-pandemic levels [in] 2019, while convention attendance in March 2023 was 39.6% higher than pre-pandemic levels.

“However, the market is still assigning zero value to RWLV, and the resort may need to show a more sustainable recovery before becoming SOP accretive,” he said.

CGS-CIMB has maintained its “add” call on GENM as a tourism recovery play with a higher TP of RM4.00 from RM3.25 previously, supported by a robust three-year (FY2022 to FY2025f) EPS compound annual growth rate (CAGR) of 48%, with dividend yield of 6%-7%.

At 11.1 times on calendar year 2024 forecast (CY2024f) price/earnings (P/E), GENM is trading at a circa 41% discount to its 10-year mean of 19 times, which looked overdone, given its strong earnings recovery, noted analysts Khoo Zhen Yen and Prem Jearajasingam.

A fair valuation based on its five-year mean P/E of 20 times would be RM4.56 on CY2024f P/E, they said.

CGS-CIMB said the strong CAGR will be driven by Resorts World Genting (RWG) Malaysia’s revenue growth in FY2023f by 30%, followed by FY2024f (16%) and FY2025f (5%).
 

“We project RWG’s revenue to surpass its FY2019 revenue by FY2024f,” said Khoo and Prem.

This was to assume a recovery in tourist arrivals driving business volume and lifting GENM’s Ebitda margin to 31% by FY2025f, given its high operating leverage.

“Foreign tourist arrivals should improve in tandem with a nascent recovery in international airline seat capacity.

“Its hotel occupancy rates at above 90% according to [its] management, and live performances, resumed to pre-pandemic frequency.

“We also believe [that] its new SkyWorlds theme park should continue to be a crowd puller, while improving operating capacity at RWG casinos on easing shortage of croupiers could increase the availability of live table games,” they added.

The analysts said Resorts World New York City (RWNYC) could win a New York casino licence in 1H2024, and would convert its current slots-only facility into a full-scale casino with 200-250 live table games.

“This is premised on RWNYC’s ability to help the state generate extra gaming taxes almost immediately, versus a new casino [which takes] at least three years to complete construction, and its long-term operational track record.

“If so, this could lift our fair value by 8%-14% or 32-55 sen per share, based on our estimated additional EBIT (earnings before interest and taxes) of RM200 million to RM350 million per annum from FY2025f onwards.

“We believe that should RWNYC win the licence, the minimum required capital of US$1 billion could be funded by potential sales proceeds of its Miami land, for which it has received an offer in excess of US$1.23 billion as reported by The Edge,” the  analysts added.

GENT’s shares were trading one sen or 0.24% higher at RM4.20 in morning trade on Thursday, valuing the group at RM16.28 billion.

GENM was also up one sen or 0.40% at RM2.54, giving it a market capitalisation of RM15.08 billion.

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