February 7, 2011

GENM - Gaming in for year of planting and harvesting

Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD
Research House: CIMB

Gaming sector
Maintain overweight
: Two themes are likely to hog the gaming spotlight in 2011 ' i) positive newsflow on mergers and acquisitions, and major corporate exercises, and ii) stronger-than-expected earnings growth for Genting Malaysia, given the stronger contribution from its US and UK assets. We continue to 'overweight' the Malaysian gaming sector, with Genting Bhd staying as our top pick. Given the emergence of more visible re-rating catalysts, we upgrade Genting Malaysia from neutral to outperform. Factors that could catalyse the sector include i) positive newsflow on regional expansion, and ii) stronger-than-expected earnings growth for regional operators.

There is upside to our earnings estimates for Genting Malaysia's US asset as there could be a change to the initial plan for 4,500 video lottery terminals for Resorts World New York (RWNY) which may be scaled back to house higher value electronic gaming tables. Also, we believe that patronage of its UK casinos will continue to improve given the revamping of its provincial casinos and rollout of the membership marketing programme.

There appears to be no let-up in Genting group's pursuit of regional assets. Hot on the heels of its UK and US expansion, Genting Malaysia is vying for the Vietnam market. Genting Singapore is looking at the Japanese market while Genting HK is exploring the Macau market. Separately, the potential entry of a strategic investor into B-Toto could be a prelude to a privatisation. Meanwhile, Multi-Purpose has acknowledged that it is considering a relisting of Magnum in early 2HCY11.

We now see more potential for an upward re-rating of Genting Malaysia, given i) stronger regional expansion newsflow, ii) stronger-than-expected earnings growth for its US and UK businesses, and iii) lower-than-expected cannibalisation by RWS. We upgrade the stock from neutral to outperform with a higher target price of RM4.30 (RM3.90 previously) as we no longer apply a 10% discount to its sum-of-parts (SOP) value.

We remain overweight on the Malaysian gaming sector. Our SOP target price for our top pick, Genting Bhd, is nudged up from RM15.20 to RM15.50 following our target price upgrade for Genting Malaysia. We continue to view the stock as a cheaper indirect play on Singapore's potential as a regional gaming and tourism hub. ' CIMB Research, Feb 7


This article appeared in The Edge Financial Daily, February 8, 2011.

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