This article first appeared in Capital, The Edge Malaysia Weekly on May 8, 2017 - May 14, 2017

THE legalisation of casino gambling in Japan had been long anticipated by global players, including Malaysia’s Genting Group that has indicated its interest in competing for a share of the market.

For investors looking to bet on Genting Group’s prospects of winning a new casino licence, Genting Bhd-issued warrant, Genting-WA, appears to be a cheaper alternative.

Tan Sri Lim Kok Thay — writing in his capacity as executive chairman of Genting Bhd’s 52.8%-owned Genting Singapore Plc, the operator of the Resorts World Sentosa in Singapore — shared some thoughts on its chances in the race for a Japan casino licence.

“We are encouraged by the passing of the Integrated Resorts (IR) Promotion Bill in Japan and will be positioning the group as a strong candidate for the bidding process,” he says in Genting Singapore’s 2016 annual report.

“If we are successful in bidding for the IR in Japan, this project will create significant value to the growth of the group,” Lim adds.

Genting-WA, which carries a strike price of RM7.96 and a one-to-one conversion ratio, will expire on Dec 18, 2018. To recap, the five-year warrant was issued at RM1.50 each on Dec 19, 2013, under a one-for-four non-renounceable restricted issue of new warrants.

Genting-WA, which closed at RM1.85 last Wednesday, was trading at a discount of 1.4% to the mother share, which closed at RM9.95 on the same day. At zero premium, the warrant would theoretically be worth RM1.99.

A quick check on Bloomberg shows that Genting has a consensus target price of RM10.28, giving it a 3.3% upside potential. That means at zero premium, Genting-WA would theoretically be worth RM2.32, if its mother shares hit the target price. This presents an even higher upside of 25.4% for the warrant.

In a report dated Feb 24, TA Securities analyst Tan Kam Meng upgraded Genting’s target price to RM10.34, up from RM9.25 previously, after revising his valuation on Genting Singapore higher to reflect the favourable sentiment on the lottery effect if the latter wins a casino licence in Japan.

“Looking back to 2005-2006 before Vegas Sands and Genting Singapore were awarded the casino licences in Singapore, casino operators, who had bid for the licences, traded at high average forward PER of 24 times 2006 EPS. We believe history will repeat itself and the new casino licence in Japan will boost ­investors’ appetite for gaming stocks,” he says.

Genting Bhd also owns 49.3% of Genting Malaysia Bhd, 51.9% of Genting Plantations Bhd and 100% of unlisted Genting Energy Ltd.

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