KUALA LUMPUR (April 7): With the Covid-19 vaccines rolling out in the country and globally, Genting Malaysia Bhd (GenM) and its parent company Genting Bhd are among stocks that have emerged as recovery plays.

The two counters have been rising on the back of analysts' prediction that the companies were set to benefit from the expected easing of the lockdown and reopening of international borders, in addition to the scheduled opening of the Genting SkyWorlds outdoor theme park in the middle of the year.

The question now is whether the two stocks are still worth buying, or are overpriced.  

GenM’s shares, which closed at RM3.11 yesterday, have risen 42.6% compared with RM2.18 a year earlier, giving the company a market capitalisation of RM18.47 billion.

Genting, meanwhile, grew 32.7% during the period to RM5.20 from RM3.92, valuing the company at RM20.16 billion.

Bloomberg data show that of the 16 research houses covering GenM,  12 have issued “buy” calls, as against seven “hold” and one “sell” recommendation. The counter has a consensus target price of RM3.32, implying a 6.75% headroom against yesterday’s closing.

Meanwhile, Genting has 12 “buy” calls and five “hold” recommendations, with an average target price of RM6.13 – which means a 17.88% upside from yesterday’s closing.

In terms of future earnings, most analysts appear to forecast a profitable year for GenM, with an estimated earnings per share (EPS) of 6.2 sen versus a loss per share of 40.05 sen a year ago. However, it is still lower than the EPS of 24.68 sen in the financial year ended Dec 31, 2019 (FY19).

Likewise, Genting has an estimated EPS of 25.4 sen, versus a loss per share of 26.6 sen previously, while it posted an EPS of 51.83 sen in FY19.

Valuation-wise, it is therefore unsurprising that both GenM and Genting will be less attractive, compared with their respective price-to-earnings (P/E) as at the end-2019.

GenM has a forward P/E of 49.84 times, versus 11.96 times at the end-2019, while Genting has a forward P/E of 20.31 times against 10.86 times.

While it appears that there is not much upside for GenM’s share price, it could be safe to say that the two counters have been really generous with their dividend payments.

GenM's current dividend yield is 6.27%, while that of Genting is 4.04%, according to Bloomberg.

Looking ahead, analysts and fund managers are of the opinion that this high paying dividend could be the trend for the Genting Group.

“In terms of dividends, they did pay a high dividend in spite of being a loss-making year last year. In fact, it was a bit too generous, If I would say,” said an analyst, who declined to be named.

“I think they will continue paying higher dividends as earnings will improve now,” the analyst added.

A fund manager, also speaking on condition of anonymity, said business will start picking up given the current recovery theme, adding that the recovery will be faster than other tourism-related companies such as those in the travel and hotel business.

“Genting Group used to pay lower dividends and keep a lot of cash for their oversea expansions… for building casinos and resorts. But this had, in turned, caused its ROE (return -on-equity) to keep falling as the yield is not as profitable or it takes some time before it could be profitable,” said the fund manager.

He also noted that this dividend payment could be said to be some sort of relief, as there were concerns of the company acquiring a stake or buying convertible bonds in Genting Hong Kong.

“It looks like it is the new trend for the Genting group to pay higher dividends. Even Genting Singapore paid reasonably higher dividends,” he added.

GenM’s cash and cash equivalent stood at RM2.45 billion as at Dec 31, 2020.

Asked if GenM should be using its cash to either buy back its shares or pay dividends, given that it is a cash rich company, the fund manager said “there is no right answer to this”.

“If you’ve got extra money and are not sure where to invest, buying your own share is also an investment. If the money is not paid out as dividends, it is savings on dividends,” he said, adding that share buy backs could be considered a short-term investment.

Another analyst said: “I know that GenM buys back shares to issue as ESOS to staff. They prefer to buy it back at lower levels and hopefully will get to ride the upside”.

To recap, GenM has spent a total of RM21.28 million on share buybacks in March this year, the last being RM4.4 million worth of stocks in the open market on March 16.

Before this, the last time GenM bought back its shares was on March 18, 2020. It then bought four million shares for RM8.34 million, at prices between RM2.04 and RM2.13 per share.

Genting, on the other hand, last undertook a share buyback back on Aug 26, 2016, involving 100,000 shares for RM821,512, at prices between RM8.18 and RM8.19.