This article first appeared in The Edge Financial Daily, on July 29, 2016.

Genting Bhd
(July 28, RM8.51)
Maintain buy with an unchanged target price (TP) of RM9.88: TauRx Pharmaceuticals reported an abstract from the First Phase 3 Results (TRx-015) for LMTX at the 2016 Alzheimer’s Association International Conference in Toronto, Canada, on Wednesday, which showed a marked beneficial effect on key measures of Alzheimer’s disease in patients with mild or moderate forms of the disease. 

It is perceived as failure by most quarters of its clinical trials in large study (85% of the sample size) when LMTX is used with other standard Alzheimer’s drugs despite benefits seen when the drug is taken alone (monotheraphy).

However, TauRx believes the positive LMTX monotherapy effect is real and the findings of the Phase 3 study are supported by a second Phase 3 study, and it still intends to file for approval with European and US regulators as a monotheraphy drug. With the latest development, we believe that all is not lost with TauRx given the impending two Phase 3 study results in coming months. However, it seems inevitable that TauRx would need more time to study the efficacy loss when LMTX is taken with other drugs and hence the subsequent monetisation plan may be further pushed back.

We still prefer Genting Bhd as our top pick for the sector given its undemanding deep valuation despite its geographically diversified business segments and various expansion plans, such as Resorts World Las Vegas, GITP and Resorts World Jeju housed under the parent group set to bear fruit from 2017 onwards. Risks to take into account include: i) regulatory risk; ii) weaker hold percentage; iii) pandemic breakouts; iv) appreciation of the ringgit; and v) higher-than-expected cannibalisation from Marina Bay Sands and Macau casinos.

As we have not imputed any valuation of TauRx into our sum-of-parts (SOP), our TP of RM9.88 remains unchanged and we opine that the selldown on speculation on TauRx presents a chance for long-term investors to take position in this cash-rich leisure giant. Meanwhile, our earnings forecasts are unchanged as we have not imputed the valuation of TauRx given the uncertainty. We maintain a “buy” call with an unchanged TP of RM9.88 based on our SOP-derived TP. — HLIB Research, July 28