Genting offers cheaper exposure to Singapore IR

Genting offers cheaper exposure to Singapore IR

Tags: Genting RWS Singapore IR

Written by Financial Daily
Wednesday, 05 August 2009 12:11

CIMB Research yesterday maintained an outperform call on GENTING BHD [ GENTING 6.210 -0.070 (-1.115%) ] at RM6.30 with a 19% higher target price, calling it a cheaper alternative for indirect exposure to the “promising” Resorts World at Sentosa (RWS) project.

“We are impressed by the speed of work at RWS. We believe that the odds have increased for Genting Singapore Ltd’s RWS to open ahead of its rival. Our earlier estimates are overly conservative given the integrated resort’s (IR) potential for opening before the year is out,” CIMB said in a note.

CIMB raised its price target for Genting to RM9.40 from RM7.90. This was after updating Genting’s sum-of-parts value with its revised target price for Genting Singapore (GS) and its latest market risk premium assumptions.

“Although GS is the listed vehicle with the direct exposure to RWS, its parent Genting offers a cheaper indirect exposure to the promising project,” CIMB said.

Genting’s price-to-earnings (P/E) and price-to-book (P/BV) valuations are at 40% to 50% discounts to Genting Singapore’s ratings, the brokerage house noted.

Nonetheless, it went on to say that Genting Singapore looked more attractive from a price earnings-to-growth (PEG) perspective, trading at less than one time PEG versus the sector’s average of 2.4 times. This, CIMB said, was “not surprising” as Genting Singapore’s three-year earnings per share (EPS) growth potential is “way higher than 100%” while most of its peers are projected to notch only single-digit growth.

Among potential catalysts for Genting include potential mergers and acquisitions (M&As), more news flow on the progress of works at Sentosa IR, and higher weighting in the market benchmark.

“We believe Genting Bhd should trade close to its sum-of-parts (SOP) valuation given that the group is continuously looking to unlock value via the disposal of its non-core assets. Also, discounts usually evaporate during a bullmarket environment. Note that we also value other conglomerates like SIME DARBY BHD [ SIME 8.310 0.030 (0.362%) ] at their SOPs,” CIMB said.

It now prefers Genting Bhd over Genting Malaysia (previously Resorts) as its top pick in the Malaysian gaming sector, given its renewed enthusiasm on RWS’ prospects.

Nonetheless, Genting Malaysia is still an attractive investment proposition, given its resilient domestic operations and its sizeable RM4.86 billion cash hoard which could mean potential M&As and/or higher dividends, CIMB added.

Genting added 10 sen to close at RM6.40 yesterday while Genting Malaysia shed one sen to RM2.92.


This article appeared in The Edge Financial Daily, August 5, 2009.