Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD
Gaming sector
Maintain overweight: Given the relatively mature gaming market in Malaysia, gaming companies have been looking to expand their business by branching out to different geographical locations globally. Berjaya Sports Toto Bhd (BToto) has attempted to do this by applying for a licence to run a nationwide lottery system in Vietnam in 2008, which is yet to be approved.
Genting Group's most recent successes overseas have been in Singapore ' Resorts World Sentosa, and in the Philippines ' Resorts World Manila. The group is now expanding its reach to New York (with Resorts World New York due to open in October); Miami (Resorts World Miami although no casino licence has been issued for this property yet); and Birmingham (with the recently announced award to set up a big casino in partnership with NEC there).
So far, all the new projects are pursued through Genting Malaysia Bhd, probably by virtue of it having the most under-utilised cash pile (RM2.8 billion as at end-1Q11).
We believe as more positive news flow on RWNY is forthcoming and the completion of the first phase draws nearer, the reality of the project and its earnings potential will become clearer to investors.
We believe this could result in earnings upgrades for Genting Malaysia and valuations would therefore look more attractive. As for Genting Bhd, it will continue to be a beneficiary of: (i) Genting Singapore's'' growing profit, which results in an earnings contribution of 50% to 55% to the group; (ii) stronger earnings growth from the plantation division on the back of high CPO prices; and (iii) any longer-term potential upside from Genting Malaysia's new projects.
In addition, the valuation gap between Genting and Genting Singapore provides investors with an arbitrage opportunity, as Genting is a much cheaper entry point into Genting Singapore.
For Genting Singapore, without junket approval from the government, we expect the fight for market share to continue to intensify in the near term, and therefore believe that the next re-rating for the stock may only come once the second phase is ready.
For BToto, we expect its new 4D jackpot game to drive earnings growth in the medium term, clawing back some market share from Magnum in the medium term, and expand the legal gaming revenue pie slightly, capturing some of the illegal gaming market share.
Risks include: (i) regulatory changes to gaming policies in the country; (ii) increase in illegal gambling activities; (iii) luck factor risks; and (iv) potential hike in gaming taxes.
We make no change to our forecasts and our 'overweight' on the sector. Our top pick for the sector remains Genting Malaysia (fair value: RM4.40), while we also have 'outperform' calls on Genting (FV: RM13.30) and BToto (FV: RM5.15), and 'market perform' on Genting Singapore (FV: S$2.15). ' RHB Research, July 7
This article appeared in The Edge Financial Daily, July 8, 2011.
Company Name: GENTING MALAYSIA BERHAD
| Research House: RHB | Price Call: BUY | Target Price: 4.40 |
Gaming sector
Maintain overweight: Given the relatively mature gaming market in Malaysia, gaming companies have been looking to expand their business by branching out to different geographical locations globally. Berjaya Sports Toto Bhd (BToto) has attempted to do this by applying for a licence to run a nationwide lottery system in Vietnam in 2008, which is yet to be approved.
Genting Group's most recent successes overseas have been in Singapore ' Resorts World Sentosa, and in the Philippines ' Resorts World Manila. The group is now expanding its reach to New York (with Resorts World New York due to open in October); Miami (Resorts World Miami although no casino licence has been issued for this property yet); and Birmingham (with the recently announced award to set up a big casino in partnership with NEC there).
So far, all the new projects are pursued through Genting Malaysia Bhd, probably by virtue of it having the most under-utilised cash pile (RM2.8 billion as at end-1Q11).
We believe as more positive news flow on RWNY is forthcoming and the completion of the first phase draws nearer, the reality of the project and its earnings potential will become clearer to investors.
We believe this could result in earnings upgrades for Genting Malaysia and valuations would therefore look more attractive. As for Genting Bhd, it will continue to be a beneficiary of: (i) Genting Singapore's'' growing profit, which results in an earnings contribution of 50% to 55% to the group; (ii) stronger earnings growth from the plantation division on the back of high CPO prices; and (iii) any longer-term potential upside from Genting Malaysia's new projects.
In addition, the valuation gap between Genting and Genting Singapore provides investors with an arbitrage opportunity, as Genting is a much cheaper entry point into Genting Singapore.
For Genting Singapore, without junket approval from the government, we expect the fight for market share to continue to intensify in the near term, and therefore believe that the next re-rating for the stock may only come once the second phase is ready.
For BToto, we expect its new 4D jackpot game to drive earnings growth in the medium term, clawing back some market share from Magnum in the medium term, and expand the legal gaming revenue pie slightly, capturing some of the illegal gaming market share.
Risks include: (i) regulatory changes to gaming policies in the country; (ii) increase in illegal gambling activities; (iii) luck factor risks; and (iv) potential hike in gaming taxes.
We make no change to our forecasts and our 'overweight' on the sector. Our top pick for the sector remains Genting Malaysia (fair value: RM4.40), while we also have 'outperform' calls on Genting (FV: RM13.30) and BToto (FV: RM5.15), and 'market perform' on Genting Singapore (FV: S$2.15). ' RHB Research, July 7
This article appeared in The Edge Financial Daily, July 8, 2011.
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