Genting Group - Go Genting!

GENM most favoured, followed by GENT. We take stock of our calls on the Genting Group names. We leave our estimates, calls and TPs unchanged. Genting Malaysia (GENM) is still our top pick thanks to its aggressive expansions plans at Resorts World Genting (RWG). Genting Singapore (GENS) is still a HOLD due to its muted earnings outlook. While GENS may eventually venture into Japan, positive news flow is unlikely to materialise until late next year at earliest. We like Genting Berhad (GENT), GENM and GENS‟ largest shareholder. GENT stands to raise MYR7.4b from the exercise of its warrants, paving the way for it to embark on M&As on its own rather than via its subsidiaries.
GENM is our top pick. Following our site visit to RWG (see concurrent report ‘Sneak Peek At MYR3b Expansion’), we maintain our BUY call and MYR4.85 DCF-based TP (Table 1). The room count at the new RWG hotel may be raised from 1,300 to >2,000 (+20% to current room count). We are positive on this as there is a strong historical correlation between room count and revenue at RWG (Charts 1-3). Should RWG‟s revenue grow by a similar 20%, we estimate that GENM‟s revenue and EBITDA would grow by 14% and 17% respectively. GENM will be announcing another c.MYR2b in investments going forward, for rejuvenation and expansion.
Early days yet for GENS. We maintain our HOLD call and SGD1.34 TP on 10x FY14 EV/EBITDA (Table 2). Ever since Tokyo was chosen to host the 2020 Summer Olympics, GENS‟ share price has recovered from its recent low of SGD1.305 on expectations that Japan will liberalise its casino industry beforehand and that GENS will secure an integrated resort license there. That said, positive news flow from Japan is unlikely to materialise until late next year at earliest due to the protracted legislative process there. At Resorts World Sentosa (RWS), we understand that while VIP volume has been recovering, mass market gross gaming revenue (GGR) has been struggling to grow.
GENT worth a bet. Maintain BUY call and MYR10.65 TP on a 20% discount to our SOP/share valuation (Table 3). Coupled with a DPS of MYR0.625 less tax this year and next, investors can expect 10% upside potential. GENT owns 49% of GENM and 52% of GENS. Although we are not bullish on GENS, we are still bullish on GENT due to our positive outlook on GENM. GENT also announced a non-renounceable restricted issue of warrants on the basis of one warrant at MYR1.50 for every four shares. The exercise price of the warrant is MYR7.96 and if they are fully exercised, GENT‟s cash pile will increase by MYR7.4b. This will pave the way for GENT to embark on M&As on its own.