Cover Story: Which Genting stock is a better bet?

This article first appeared in The Edge Malaysia Weekly, on January 21, 2019 - January 27, 2019.
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FOLLOWING the decline in the share prices of Genting Malaysia Bhd and its parent company, Genting Bhd, investors are seeing value in the counters. That said, which of them should investors bet on for exposure to the group’s gaming business?

At current valuations, the holding company, Genting, is favoured over its listed units Genting Malaysia and Genting Singapore Ltd by most local analysts contacted by The Edge.

Genting Malaysia runs Resorts World in Genting Highlands while Genting Singapore runs the group’s assets in Malaysia, Singapore, Australia, the Bahamas, the Philippines and the UK.

Genting holds the plantation, property and other businesses.

“We have always liked Genting in terms of its PER (price-earnings ratio). It is cheaper than Genting Malaysia and Genting Singapore and, to a certain extent, because of the foreign shareholding of more than 43%,” Maybank IB Research analyst Samuel Yin Shao Yang tells The Edge over the phone.

He has ascribed a PER of 10 times for Genting and 15 times for both Genting Malaysia and Genting Singapore.

He says Genting is favoured as it is a cheaper proxy for the growth story of Genting Malaysia and Genting Singapore. Should the Singapore unit succeed in entering Japan and securing a casino licence, Genting also offers a cheaper entry to ride that growth story.

TA Securities senior analyst Tan Kam Meng says he would split the bet and invest in both, given the different risk-return trade-off.

He explains that the valuations of Genting Malaysia and Genting are “attractive enough” for investors to buy into, especially for the long term. “We strongly believe that the termination of the theme park will not affect the gaming business as it has always been the driver.”

A local analyst who declined to be named says that between the two counters, the preference is for Genting as its earnings are more diversified and the stock is seen as more defensive.

“It is less vulnerable, less volatile to any impact [relating to] the casino business,” says the analyst. After all, the share price of Genting Malaysia has dropped more than Genting’s, he explains.

UOB Kay Hian Research head Vincent Khoo, however, prefers Genting Singapore due to its strong balance sheet, without significant legacy investments with impairment risks, and its good chance of clinching a gaming concession in Japan.

Looking at just the share price performance of the three Genting counters, Genting Singapore has certainly brought investors more returns.

To put things in perspective, if one had invested in Genting Singapore on Dec 12, 2005, at S$0.28 (63 sen) a share, he would have seen a total return of 280.96% today (Jan 17).

This does not take into consideration the currency exchange rate during the 12-year period.

Meanwhile, investors in Genting Malaysia and Genting — which at the time were fetching RM1.58 and RM3.20 per share respectively — gained less than half of the returns from investing in Genting Singapore. The total returns on investment in Genting Malaysia and Genting would be 103.09% and 104.17% respectively today.

It is worth noting that the shares of Genting Singapore had risen nearly fivefold to close at S$1.08 (RM3.27) on Jan 17, compared with Genting Malaysia and Genting, which have only doubled to settle at RM3.37 and RM6.82 respectively.

Prior to the slew of negative news that hit Genting Malaysia and Genting, at their 52-week high of RM5.70 and RM9.74 respectively, the two counters had tripled over the 12 years — less than Genting Singapore’s gains.

At present, all three counters are below the analysts’ average target price, which means that there is still upside potential. Bloomberg data shows consensus target prices of RM3.40 for Genting Malaysia, RM8.49 for Genting and S$1.36 for Genting Singapore.

However, in terms of average dividend yield over the last seven years, Genting Malaysia leads at 2.08% compared with Genting’s 0.63% and Genting Singapore’s 1.6%.

 

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