Genting a buying opportunity but upside limited

The current sentiment surrounding Genting’s stock is negative, says an analyst

by MARK RAO/ pic by BLOOMBERG

GENTING Bhd’s share price now presents a buying opportunity for investors looking to tap into potential value, but the upside is limited due to the challenging regional gaming market.

Shares in the South-East Asia’s largest casino conglomerate are trading at a 10-year low, last closing at RM5.84 yesterday, largely owing to negative sentiment surrounding the stock.

Genting — which also has interests in power generation, plantation, property, and oil and gas industries — lost RM6.78 billion in market capitalisation since hitting a year-high of RM7.60 on Feb 21.

At current levels, it’s potentially a buying opportunity for investors, as the analyst consensus one-year target price (TP) for the stock is RM7.49, according to Bloomberg data.

This was in spite of analysts lowering its TP by 6.2% in the past three months and represents an upside of 28.2% from Genting’s last closing price.

TA Securities Holdings Bhd senior analyst Tan Kam Meng said there is value to be reaped from the stock, but noted that the company’s outlook remains challenged.

“At Genting’s current price, it is a buying opportunity for investors as we saw value in the stock re-emerged after its share price dipped. We perceive the selldown as overdone,” he told The Malaysian Reserve (TMR).

“At the same time, the outlook for the company is not fantastic as the US-China trade war is expected to adversely impact gaming volume, especially for the regional markets,” Tan noted.

He said markets like Cambodia and Vietnam are offering heightened competition to Genting’s gaming business, which will eat into profits.

In its latest report, TA Securities upgraded Genting to a ‘Buy’ from ‘Sell’ but lowered its sum-of-the-parts valuation to RM6.87 from RM6.97 previously.

This was to account for the change of fair value for the company’s 49%-owned subsidiary Genting Malaysia Bhd (GenM) from RM3.47 to RM3.30.

GenM will hold up to 49% stake in the loss-making and debt-saddled Empire Resorts Inc, while Kien Huat Realty III Ltd will hold the remainder interest. Kien Huat Realty is the investment vehicle of Tan Sri Lim Kok Thay, who is also the controlling shareholder of Genting.

The Malaysian subsidiary also resolved its dispute with Twenty-First Century Fox Inc and The Walt Disney Co, where it had initially sought over RM1 billion after the two companies pulled out of their contract to develop an outdoor theme park in Resorts World Genting.

GenM is now working on the development of the outdoor theme park. Details on the opening date will be announced in due course.

However, the impact on earnings from the new theme park will not be significant as the Empire acquisition will have a much larger impact on the group, according to an analyst with a local brokerage.

“Management has not indicated any immediate turnaround plans for the loss-making resort (Empire) which will drag down group (Genting) earnings,” the analyst told TMR.

The Nasdaq-listed Empire owns and operates the Resorts World Catskills and Monticello Casino and Raceway in New York.

The acquisition is expected to contribute to synergies and economies of scale between Empire and GenM’s own Resorts World Casino New York City, but the former is mulling to file for voluntary Chapter 11 bankruptcy to restructure its sizable debt.

The analyst said it is too early to tell if it is a buying opportunity for Genting as the current sentiment surrounding the stock is negative.

“The company’s near-term prospects are not promising and thus investors see the stock as too risky. This is in spite of Genting still promising long-term value on organic growth alone,” he said.

For its second quarter ended June 30 this year, Genting’s net profit jumped 56.4% year-on-year (YoY) to RM599.68 million on higher contributions from its resorts in Singapore and Malaysia, while its revenue grew 13.1% YoY to RM5.45 billion over the same period.

Resorts World Sentosa in Singapore registered a higher win percentage in the VIP rolling segment, but the underlying mass gaming business declined.

The company’s flagship resort in Malaysia, Resorts World Genting, registered an overall decline in business volume.

This was offset by the improved hold percentage in the mid to premium players segments. Genting declared a 6.5 sen dividend for the quarter under review.