BUY on Genting Bhd

AmResearch maintain BUY on Genting Bhd with unchanged RNAV-based fair value of RM7.66/share. Genting Bhd’s 1QFY10 core net profit was above consensus and our profit forecast - due to better-than-expected earnings contribution from Genting Malaysia Bhd (GenM) and Genting Singapore PLC (GenS).

Included in Genting Bhd’s net profit were a slew of noncash items amounting to a net negative RM799mil. Largest item was an RM1.3bil impairment loss for GenS’s investments in Britain, GenM’s investment in Walker Digital Gaming LLC and Genting Bhd’s investment in the Meizhouwan power plant in China.

Its leisure and hospitality (casino) earnings was the profit driver of Genting Bhd in 1QFY10, compensating for unexciting earnings from its power and oil and gas divisions. Its leisure and hospitality division accounted for 78% of group EBITDA in 1QFY10.

AmResearch have raised Genting Bhd’s FY10F net profit estimate by 21% to account for higher profits from GenM and also reduced GenS’s FY10F net loss forecast from S$69mil to S$19mil on back of higher casino patronage and drops. Despite this, we are keeping our DCF-based fair value for GenS at S$0.98/share due to lower terminal growth rate of 8% versus 10% previously.

During a conference call last Thursday, management justified its RM27mil investment in a Sri Lanka bank by
saying that the group was constantly looking in Asia for growth opportunities - and that these may not necessarily be in the casino industry.

Also, GenM and GenS would be seeking overseas investment opportunities separately as opposed to the
possibility of a joint venture as mentioned in previous conference calls.

The Board of Directors at the respective companies will decide which investments each company would pursue. They will also take into account risk of the two companies competing with each other.

GenS has yet to use the S$1.5bil proceeds from its 1-for-5 rights issue in October 2009 while GenM has net cash of US$1.6bil (RM5.3bil).