Genting Malaysia Bhd
(Oct 17, RM4.51)
Maintain buy with an unchanged target price (TP) of RM5.70: Despite Genting Integrated Tourism Plan (GTIP) Phase 1 approaching construction completion and potentially decent third-quarter of financial year 2018 (3QFY18) results, Genting Malaysia Bhd’s share price has fallen 11% since Oct 9, 2018 (-21% year to date) due to fears of a casino tax hike. While this risk cannot be discounted, we gather that the market is imputing an overly onerous casino tax hike of eight to 10 percentage points (ppts). Genting Malaysia is even trading at 1.2 times 12-month (12M) forward price-to-book value (P/BV), a multiple not seen since the global financial crisis a decade ago. The risk-reward profile overwhelmingly favours reward, in our view.
Most facilities under GITP Phase 1 have opened. We gather that the remaining Skytropolis and 20th Century Fox World theme parks will open in 1QFY19 and early-2QFY19 respectively and within our expectations. In addition, Genting Malaysia will open The Void virtual reality entertainment centre and Zouk Genting nightclub within Sky Avenue mall. We particularly like Zouk Genting as Genting Malaysia will join the global trend of casino companies attracting young gamblers via nightclubs.
We estimate 3QFY18 group earnings before interest, taxes, depreciation and amortisation of around RM700 million or +50% year-on-year (y-o-y) and within our expectations assuming: i) normal Resorts World Genting (RWG) VIP win rate (3QFY17: below); ii) two months of nil goods and services tax/sales and service tax at RWG; and iii) organic RWG gaming volume growth of 10% to 15% y-o-y. We also understand that gaming volumes recovered strongly quarter-on-quarter after the 14th general election (May 9, 2018) and Fifa World Cup (June 14 to July 15, 2018). Our estimates and RM5.70 TP are unchanged for now.
Genting Malaysia is currently trading at 1.2 times 12M forward P/BV or at par to its global financial crisis trough. A cursory view of its share price trend even implies to us that the value of most new facilities under the GITP has been completely discounted. Our estimates also indicate that the casino tax rate will have to be hiked 8ppts to 10ppts to cut our TP to the current share price, which we opine is highly unlikely. A share price risk is its high foreign shareholding, at 37.9% as at end-September 2018, amid a weak broader market. — Maybank IB Research, Oct 16