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Wednesday, October 5, 2016

Brokers Report: Genting Malaysia Berhad - Disposal of Genting HK



Maintain neutral rating with unchanged target price (TP) of RM4.60


Yesterday, Malaysia’s gaming giant, Genting Malaysia (GENM) agreed to sell their 16.9% stake in cruise ship operator Genting Hong Kong (GENHK), worth more than USD400 mil., to Golden Hope Limited (GHL). An article from Nikkei Asian Review (Monday, 4 Oct) said that the related-party transaction will allow Genting to dispose their investments in the barely-traded GENHK, which hasn’t fetched any substantial returns for nearly two decades.
 
Following the news, Macquarie Equities Research (MQ Research) released a report, expressing their view that the stake sale will give opportunities for GENM to expand internationally. Read more excerpt from the report released yesterday (Monday, 4 Oct) …

Event

  • GENM announced this morning it had accepted an offer from GHL to acquire its entire 1.43bn shares in GENHK, representing a 16.9% stake at the minimum shareholder-mandated price of US$0.29 per GENHK share. GHL is owned by a discretionary trust in which the Genting group's controlling shareholder i.e. the Lim family are beneficiaries.
 
Impact

  • The stake sale to the Lim family crystallizes a corporate governance risk MQ Research had flagged as a discounting factor for the stock. This related party transaction will reinforce the valuation discount accorded the Genting group of companies vis-a-vis their listed regional gaming peers.
  • The stake sale will raise US$415 mil. for GENM which is earmarked for international expansion opportunities. Note the planned capacity expansions at its core Malaysian casino-resort as per the 10-year, RM10.4bn Genting Integrated Tourism Plan (GITP) announced Dec 2013 will be funded via Malaysia-generated Ringgit cashflow and borrowings.
Action and recommendation

  • MQ Research maintain a Neutral rating with an unchanged sum of the parts analysis based target price of RM4.60. GENM is likely to remain a value trap until it breaks from a recent string of uninspiring quarterly earnings via tangible earnings lift from new resort capacity.

Source: Macquarie Research - 05 October 2016

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