Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on March 26, 2020

Genting Bhd
(March 25, RM3.45)
Maintain buy with a lower target price of RM5.64:
Genting Bhd’s share price has declined 49% year to date and is now trading at an attractive 6.3-3.6 times financial year 2020 (FY20) to FY21 enterprise value/earnings before interest, taxes, depreciation and amortisation (Ebitda) versus regional peers of eight to nine times. While the Covid-19 pandemic should negatively impact FY20, we believe earnings will eventually recover when the pandemic stabilises. The stock offers a deep value proposition and is a cheaper proxy to the Japanese casino play.

Resorts World Genting has been closed for the duration in line with Malaysia’s movement control order to contain the spread of Covid-19. While we expect the pandemic to be broadly contained in the first half of 2020 (1H20), 2H20 may see only a gradual recovery due to persistent public health concerns, coupled with the cancellation of Visit Malaysia Year 2020. The group’s overseas operations in the US, the UK, Egypt and Bahamas should not be spared given the global contagion.

Genting Singapore plc highlighted that Resorts World Sentosa has experienced a significant decrease in visitors across all its facilities amid the pandemic and travel restrictions. Travel restrictions to Singapore are likely to delay tourism recovery until the later part of 2020.    

Our in-house FY20 crude palm oil (CPO) price forecast was recently cut to RM2,400 per tonne from RM2,600 due to the pandemic and low crude oil prices. Being largely an upstream company (78% of adjusted Ebitda), it would be negatively impacted. As such, FY20 earnings were cut by 20%.

We cut FY20 earnings by 48.5% after the downward revision from Genting Malaysia and Genting Singapore due to Covid-19 and lower CPO price assumption for Genting Plantations Bhd. However, our FY21-FY22 earnings are slightly higher by 3.3%-2.9% due to pent-up demand once the pandemic stabilises. — RHB Research Institute, March 25

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