This article first appeared in The Edge Malaysia Weekly on December 23, 2019 - December 29, 2019

THE year has not exactly been the best for Genting Malaysia’s stock, which has been underperforming and is trading at valuations near 10-year lows.

Will the gaming company be dealt a better hand in 2020?

Some in the investing community are hopeful that it might open its outdoor theme park earlier than the second half of next year.

“The tentative plan is to open it in the third quarter of next year but if all goes better than expected, there is an expectation that it could be earlier than that. Some rides are already being tested,” says a gaming analyst who made a site visit.

A senior executive with Genting Group declined to comment, only stating that the group will make an announcement on the opening when the time is right.

Amid considerable interest in the launch date, Genting Malaysia’s share price has slipped to levels that have courted the interest of analysts.

Macquarie Equities Research recently initiated coverage on the counter with an “outperform” rating and a target price of RM3.75 — a 14% upside to last Wednesday’s close of RM3.22.

“Despite the company’s margins performing below their structural potential, Macquarie Research sees a lot of opportunities in the longer term and is positive on Genting Malaysia, and believes that the company is focused on rebuilding investor confidence, which reduces near-term risks,” it states in a Dec 12 report.

Genting Malaysia is its “highest conviction pick in Asia gaming”.

The foreign research house does not believe the stock’s seven times enterprise value multiple reflects the group’s high base mass exposure in the country, which offers consistent cash flow.

Rather, it believes investors in Genting Malaysia should apply a similar multiple as US regional gaming stocks that are trading at about eight times, given similarities in free cash flow (FCF) generation and mature growth outlook.

Macquarie Research’s RM3.75 target price was arrived at by applying eight times multiple to its 2021 forecast, implying an 18% upside in addition to Genting Malaysia’s stable 6% dividend yield.

“Meanwhile, with FCF ramping in 2021 and beyond, Macquarie Research sees Genting Malaysia’s 11% FCF yield supporting both deleveraging and enhanced capital returns to shareholders,” it adds.

Another foreign research house, UOB Kay Hian Research, upgraded its call on Genting Malaysia to an “overweight” last month, and upped its target price to RM3.60 from RM3.16 in November.

“The outdoor theme park will significantly enhance Genting Malaysia’s status as a provider of world-class entertainment and further boost its tourist patronage. Assuming 9,000 visitors per day, average spending of RM260 per pax (including F&B spending) and Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of 30%, Genting Malaysia can rake in RM256.2 million Ebitda per year,” it estimates.

Also turning more positive about the stock is RHB Research, which has upgraded its earnings estimates and backed its “buy” call with an increased target price of RM3.96.

“As we obtain greater clarity on the outdoor theme park plus Empire Resorts’ recent positive Ebitda quarter, we believe sentiment will improve, especially on a strong set of results, while valuations remain at trough,” RHB Research notes in a Nov 29 report.

“We increase our FY19F to FY21F earnings [by] 3.3%, 0.4% and 2.2% [respectively], as we lift our margins assumption following the strong set of results. Accordingly, we lift our target price. While the environmental, social and governance de-rating from the related-party transaction is not a distant memory yet, we believe the steep price correction (more than RM2 billion) has been overdone,” it adds.

The gaming stock has been trading at an average of RM3.15 for the year (up to Dec 18) — more than 20% below its five-year average price of above RM4.

It started the year below the RM3 level at RM2.85 after hitting a five-year low of RM2.633 on Dec 14 last year.

The stock has been hovering at the RM3 level this year — a shadow of the RM4 levels it enjoyed over 2017 to 2018 before it was hit in November last year after the government announced a 10% hike in gross gaming revenue taxes. Genting Malaysia’s share price then tumbled by a whopping 20%.

Then, in August this year, the shares fell another 12% intraday after Genting Malaysia announced the acquisition of a substantial stake in lossmaking Empire Resorts, angering investors.

Maybank Investment Bank Research opines in a Nov 29 report that investors will “stay on the sidelines until they get a handle of the losses generated by Empire Resorts”.

It expects 4Q2019 to be sequentially stronger for Resorts World Group due to “seasonally more visitors”.

“That said, this will be moderated by losses from 49%-owned Empire Resorts (not listed) whose acquisition was completed on Nov 15. We roll forward our valuation base year to end-FY2020E from end-FY2019E. That said, we also raise our weighted average cost of capital to 12.4% from 11.1% as we raise our beta to 1.3 (five-year average) from 1.1 to reflect recent news flows. This trims our sum-of-the-parts-based target price by two sen to RM3.25,” it notes.

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