By Maybank IB Research
28th Feb 2013
Buy (from Hold)
Share price: MYR9.42
Target price: MYR11.50 (from MYR8.95)
Upgrade to BUY. We lift Genting (GENT) FY13-14 earnings forecasts by 5%/7% and RNAV/sh valuation by 13% to MYR14.42 on higher VIP volume expectation at 52%-subsidiary, Genting Singapore (GENS). We consequently raise our TP for GENT by 28% to MYR11.50, pegging a lower 20% discount to our new RNAV/sh valuation (vs 30% previously).
With an improving outlook, we believe that this discount should narrow to its historical mean of 20%. We think that GENT should re-rate post the 13GE as a cheaper alternative to GENS and regional peers. GENT
now trades at just 14x FY13 PER vs regional peers at 16-25x.
Raising estimates to reflect higher VIP volume at GENS. On 22 Feb 2013, we raised our GENS FY13-14 earnings estimates by 9-13% and EV/EBITDA based TP by 24% to SGD1.67 (please refer to our report “VIPs Are Making A Roaring Comeback”). The revised outlook is on the back of higher industry VIP volume expectation (Table 1) but on an unchanged 47% share of Singapore’s VIP volume. We now filter though these changes to its parent, GENT, raising GENT FY13-14 earnings estimates by 5%/7% and RNAV/sh valuation by 13% to MYR14.42.
BUY GENT now and get GENM for free. At its last price of MYR9.42, GENT is trading at a wide 35% discount to our revised RNAV/sh which is -1SD to its historical mean (Chart 1). We opine that these valuation levels are unwarranted as they were last seen during the Sep 11 (2001) and SARS pandemic (2003) which posed a real threat to visitor arrivals to its casinos. In fact, if investors were to BUY GENT now, they would get its stake in GENM and the licensing and management fees that GENM pays to GENT for free – these make up 23% (MYR3.32) and 13% (MYR1.81) of our MYR14.42 RNAV/sh estimate for GENT.
Cheaper alternative. Based on our estimates, half of GENT’s RNAV/sh is derived from GENS whose operation is based outside Malaysia. In the last three months, GENS’ share price has risen 24% due to its
improving outlook but GENT’s share price has risen just 3% over the same period. Investors who missed out on GENS’ share price rally should BUY GENT for a cheaper alternative exposure.
Earnings downside risk subsiding. With GENS’ earnings downside risk being limited at this juncture, in our view, the sole downside risk to GENT earnings comes from 55%-subsidiary Genting Plantations
(GENP MK, HOLD, TP: MYR8.00) where we assume CPO ASPs of MYR3,000/t in FY13 vs the current spot price of about MYR2,400/t. GENP contributes 9% to our net profit forecast for GENT in FY13. That
said, even if we were to impute CPO ASPs of MYR2,400/t in FY13, the net impact to our GENT earnings and RNAV/sh estimates are just <5 4q11:="" 4q12="" bringing="" core="" expect="" expectations.="" fy12="" gent="" it="" its="" myr2.4b="" myr494.5m="" myr626m="" myr700m="" net="" of="" p="" profit="" record="" release="" results="" to="" today.="" we="" will="" within="">
A case for earnings upside potential. Singapore is now a CNY trading hub (effective 5 Feb 2013) with Industrial and Commercial Bank of China (ICBC) as the clearing bank. GENS will likely benefit from
more Chinese VIP volumes going forward as ICBC will improve the importability and convertibility of the CNY in Singapore. Both GENS and GENM are also actively seeking to expand via M&As: GENS into Japan and GENM into New York and Florida in the United States.
[Source]
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