choi baccarat（www.vng.app）：Raising the wager on Genting
,A year ago, when movement restrictions were imposed to curb the Covid-19 outbreak, Genting Bhd, the holding company with three listed subsidiaries under it, including Genting Malaysia Bhd, was among the biggest casualties of the pandemic-driven market meltdown. WITH the focus having shifted to recovery plays, the Genting group of companies is on the radar. A year ago, when movement restrictions were imposed to curb the Covid-19 outbreak, Genting Bhd, the holding company with three listed subsidiaries under it, including Genting Malaysia Bhd, was among the biggest casualties of the pandemic-driven market meltdown. Shares of Genting and its 49.5%-owned hilltop casino operator, Genting Malaysia, had plunged to multi-year lows on fears over the impact on earnings from temporary closure of casino-resorts – unprecedented for gaming companies that ran operations around the clock. Across the causeway, shares of Genting Singapore Ltd, which operates Resorts World Sentosa (RWS) – one of the city-state’s two integrated resorts and a top tourist magnet – were also beaten down. Prices have rebounded more than two-thirds from their March 2020 lows with the return to normal now in sight.Genting resorts Singapore “Genting stocks are key recovery plays and it can only get better from here, notwithstanding near-term bumpy earnings. “Genting Malaysia, for example, is still buying back its shares. And looking back, although the stocks have recovered from their lows, they are still far from the highs they used to do, ” says Rakuten Trade head of equity sales Vincent Lau. Buying into Genting and Genting Malaysia gives investors exposure to both the gaming and hospitality sectors, but the former also has interests in plantations (via Genting Plantations Bhd), property, power and oil and gas (O&G). Of the two stocks, views are mixed on which does an investor bet on. Lau, for one, does not have a specific preference. He says taking a long-horizon view, both stocks have upside and shares of the holding company and subsidiary tend to move in tandem. A bank-backed research firm in a note to its private banking clients this week said it was adding the parent company, Genting, to its equity model portfolio because its exposure to global casinos, plantations and O&G makes the stock a broad-based recovery play. “Despite share prices bouncing off its lows, Genting remains undervalued at 0.6 times price-to-book versus the historical average of 0.8 times. It is a cheaper proxy to Genting Singapore and Genting Malaysia, ” it points out. The research firm expects further share price re-rating when Singapore opens its borders to international tourists, the launch of the much-awaited Genting SkyWorlds outdoor theme park in the second quarter and the opening of the all-new Resorts World Las Vegas (RWLV) in the Vegas Strip this summer. High crude palm oil (CPO) and oil prices will also boost Genting’s earnings this year. At a revalued net asset value (RNAV)-derived target price of RM7 (based on a 30% holding co discount), there is a 38% upside potential for the stock, according to the research firm. Nomura’s Tushar Mohata, on the other hand, prefers Genting Malaysia over Genting. “We like to play the Covid-19 recovery directly through the operating subsidiaries rather than the holding company. We think that the discount to RNAV for Genting will remain wider for longer, and is unlikely to revert to its historical 31% average. “This is because the standalone balance sheet at Genting is weaker and the current capex cycle at RWLV, once open, will result in a higher startup cost for the holding company, ” he tells StarBizWeek. He says Nomura has a “neutral” rating on Genting and a “buy” on Genting Malaysia with a RM3.80 target price. It also has a “buy” on Genting Singapore, which it sees as one of the better tourism recovery stories due to its balance sheet strength and the good control of Covid-19 in that country. Near-term challenges, however, remain. Nomura says Genting Malaysia’s earnings for the first quarter of financial year 2021 (Q1) will likely be impacted because of the one-month closure of Resorts World Genting (RWG) following the government’s decision to re-impose the movement control order (MCO) recently. On a brighter note, it sees operations turning around in Q2. This is barring any risk of Covid-19 flaring up again, delays in vaccine deployment or reopening of country borders. It notes that earnings from UK operations will likely remain minimal until May as per the UK reopening guidelines where casinos along with other indoor hospitality venues will only be reopened not earlier than mid-May. As for other countries such as the US, Singapore and Egypt where the Genting Group has a footprint, businesses are running as usual and a good recovery pace is expected, according to analysts. Taking into account closures in the UK and Malaysia, Nomura is cutting Genting Malaysia’s financial year 2021 (FY21) and FY22 revenue forecasts by 10% and 3%. Similarly, its adjusted earnings before interest, taxes, depreciation, and amortisation (Ebitda) for FY21 is cut by 24%. For the following year, it has raised forecast Ebitda by 2% to build in the better prospects once Skyworlds opens. For FY21, it now forecasts that the company would still be in the red a loss before a turnaround in FY22. Riding on the economic reopening investment theme, UOB Kay Hian (UOBKH) also believes that the Genting Group will continue to significantly outperform the FBM KLCI index. “We expect Malaysia to allow inter-state travel and to eventually reopen its borders. As an indication of the sector’s longer-term upside, the upside to the current prices could be 16%-45% based on our 2022 Ebitda forecast and mean valuation, ” it said in a March 18 sector update on the casino segment. Another factor that could be drawing investor interest despite near-term earnings drag is potential dividends. UOBKH believes gaming companies should regain their revenue and steady streams of cash flows in 2022-23 on business normalisation. “Combined with their strong balance sheets, they will fairly swiftly resume their generous dividend policies and this should satisfy investors’ hunger for sustainable high yield plays in a low interest rate environment, ” it says, noting that gaming companies offer lush prospective yields of 3%-6.3% for 2022.
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