GENTING going global

Genting Bhd
(Sept 28, RM9.88)
Maintain buy at RM9.77 with higher target price of RM14.05 (from RM11.70): Genting group’s Singaporean (Resorts World at Sentosa or RWS) and Malaysian gaming assets (Genting Malaysia) both performed above expectations in their 2QFY2010 quarterly results. This reinforces our view that the two new integrated resorts in Singapore have enlarged the region’s gaming pie with minimal cannibalisation impact on Genting Malaysia’s business. The group’s relatively stable and expanding gaming business continued to form the bulk of its earnings at 85%, as at 1HFY2010, with Singapore already contributing 52% of the group’s total revenue. We expect this to increase over time given the robust growth trajectory of its Singapore gaming operation.

The group’s gaming assets (per share) alone are worth RM11.36 at the current market value, and RM13.33 based on our fair value versus Genting group’s current market price of RM9.77. This implies that the stock is currently trading at a significant 33.6% discount to its sum-of-parts (SOP) valuation based on the current market value of the group’s listed entities, and at an even steeper 40.8% discount based on our fair value of S$2.65 for Genting Singapore.

Following our recent earnings upgrade on Genting Singapore, we are raising our FY2010 and FY2011 earnings forecasts for the group by 19.9% and 8.3% respectively. Genting Bhd currently trades at an undemanding 14.6 times and 12.4 times FY2010 and FY2011 PER respectively, against its five-year historical average PER of 16.5 times. Its valuation is all the more undemanding if one considers its compelling three-year CAGR of 41%, largely driven by Genting Singapore’s early cycle growth stage. Against the backdrop of such compelling growth, we think that the stock’s current FY2010 and FY2011 EV/Ebitda valuations of 6.3 times and 5.2 times are indeed attractive.

The group’s fast expanding global gaming footprint, covering gaming interests in Malaysia, Singapore, the UK, the Philippines and the US, is certainly not reflected in its below industry average valuations of 6.3 times and 5.2 times FY2010 and FY2011 EV/Ebitda. This compares with the likes of Las Vegas Sands and Wynn’s, trading at a one-year forward 14 times and 12 times EV/Ebitda respectively despite their slower earnings growth and much higher gearing. Incorporating our recently revised target price for Genting Singapore, we are raising our SOP target price for Genting Bhd from RM11.70 to RM14.05, to which we have also pegged a 15% holding company discount. Its future catalysts include its ability to unlock the value of its power assets by potentially listing them. — OSK Investment Research, Sept 28

This article appeared in The Edge Financial Daily, September 29, 2010.