Maintain neutral: With ongoing intense competition, gaming revenue will remain challenging for the rest of the year. We are also expecting visitorship to remain rather stagnant year-on-year (y-o-y) at about 26 million visitors per annum. With limited control over the top line, Genting Malaysia Bhd (GenM) has focused on its cost rationalisation measures. Positive results have been seen on the group’s efforts. We are of the view that the cost-saving measures can partially cushion the higher tax rate and lower tax incentives. We forecast financial year 2019 (FY19) earnings to be weaker y-o-y (-36%).
GenM will not pursue the outdoor theme park with the Fox branding. Despite the theme park being ready for operation, with the ongoing legal case, GenM is unable to operate the theme park. The first hearing date of the Disney-Fox case is likely to be by end-2019 and is likely that GenM will request for permission to run the theme park during the hearing. As of now it is still uncertain on the opening date of the theme park.
Genting Singapore (GenS) is among the seven entities that participated in the request-for-concept phase. We ran a quick analysis on each company’s global presence and cash pile on hand. We opine that GenS and Las Vegas Sands may stand out among the rest, given their expertise in running a casino in a strictly regulated country like Singapore. Besides that, GenS’s decent credit profile seems rather ready to undertake a huge capex.
Minimal impact had been seen in the lower number of drawing days which took effect in January 2019. Instead, we saw Berjaya Sports Toto Bhd (BToto) reporting higher sales per draw (+10.2% y-o-y). We believe this is attributable to stricter enforcement by authorities to clamp down on illegal operators. Besides that, we expect to see growth in BToto in the coming quarters as the group had recently introduced a new game (4D Toto Zodiac).
We upgrade GenS to “buy” from “hold” with a higher target price (TP) of S$1.17 (from S$1.08). As we revise our enterprise value/ earnings before interest, taxes, depreciation and amortisation (EV/Ebitda) to nine times from eight times, as we think that the risk to reward had turn appealing. The stock is currently trading at -1 standard deviation below five years average (EV/Ebitda). With the request for proposal around the corner, we opine that in the near term, we may see some positive momentum on the stock. Following the higher TP for GenS, our TP for Genting Bhd is raised marginally from RM6.77 to RM6.80 but “hold” rating is maintained. — Hong Leong Investment Bank Research, July 4