KUALA LUMPUR (April 29): Genting Bhd, whose shares have been battered since the COVID-19 outbreak as casinos under the group were forced to suspend operations amid lockdowns across the globe, has garnered as many as 14 buy calls from 17 research houses covering the stock, according to Bloomberg data.
Among those who issued a 'buy' call on the stock is CGS-CIMB Research, which reiterated its recommendation to clients in a note sent out on Tuesday, with a target price of RM5.65 on the stock.
In particular, CGS-CIMB Research analyst Foong Choong Chen noted that Genting’s Resorts World Las Vegas (RWLV) is scheduled to open in summer 2021, with US$1.9 billion invested as at end-2019 and funding secured to complete the US$4.3 billion project.
"It has put in place an experienced top management (that have worked at other established Strip properties) and tied up with Hilton, bringing in three of its hotel brands and the ability to leverage the Hilton Honors database. The Las Vegas Convention Centre phase 2 expansion (end-2020), the new Drew Las Vegas resort (end-2022) and RWLV itself could drive more visitor traffic in the coming years to the North Strip where it is located," Foong wrote.
CGS-CIMB expects RMLV will take time to establish itself in a competitive market, so its preliminary estimates are for net losses – excluding pre-opening expenses – of US$41m (RM178m) in FY21 and US$51m (RM222m) in FY22, with net profits from FY24.
However, should RWLV open in a severe economic recession, profitability may be pushed back to FY26 and estimated net losses may be higher at US$61 million (RM264 million) in FY21 and US$140 million (RM611m) in FY22.
"If RWLV does poorly, we do not rule out Genting injecting more equity to make up for shortfalls. However, Genting is ultimately not liable for RWLV’s substantial debt as they are ring-fenced to the project," Foong added.
While CGS-CIMB's new TP for Genting is lower than its previous target price of RM7.30, it still represents a potential upside of over 43% from its closing price of RM3.95 on Monday. The TP revision was made following the research firm’s recent earnings revision in Genting Malaysia Bhd (GenM) and Genting Singapore Ltd. Accordingly, Foong slashed Genting's financial year ending Dec 31, 2020 (FY20)/(FY21)/(FY22) core earnings per share (EPS) by 52%/20%/15%.
“We prefer Genting over GenM as Genting offers greater upside even after applying a conservative valuation approach, except in a severe economic recession,” Fong wrote.
Foong forecast Genting’s net profit will come in at RM780 million in FY20, RM1.51 billion in FY21 and RM1.73 billion in FY22. Revenue, on the other hand, is estimated to be at RM16.79 billion in FY20, RM20.86 billion in FY21 and RM22.11 billion in FY22.
In FY19, Genting’s net profit jumped 45.15% to just under RM2 billion from RM1.37 billion in FY18 – when there was a massive RM1.8 billion impairment loss. The group also recorded gain on disposal of UK assets in FY19. Revenue grew by 3.66% to RM21.62 billion from RM20.85 billion in FY18, thanks to higher contribution from its leisure and hospitality division, as well as from its plantation and power divisions.
At market close today, the stock was up 10 sen or 2.54% at RM4.04, which gives it a market capitalisation of RM15.56 billion.
Out of 17 research houses covering Genting - which touched its lowest in about 16 years on March 19, at RM2.91 - only three has it on 'hold'. According to Bloomberg, the consensus target price is RM5.40, which indicates a potential upside of RM34% from its closing price today.
Year to date, Genting's share price has fallen 31.71%, while GenM has lost 28%.
When compared with some other casino operators in the region – which also experienced double-digit contractions in their share price – only NagaCorp Ltd performed slightly worse as it was down 32.43% since the beginning of this year. The rest saw declines of between 12.17% and 29.69%.
In terms of valuation, both Genting and GenM now appear cheaper than other casinos, with trailing 12 months price-to-earnings (TTM P/E) of 7.79 times and 9.27 times, respectively. Genting Singapore Ltd (GENS) has a TTM P/E of 13.4 times while other Macau-based casinos have between 9.87 times and 18.79 times.
Read also:
https://www.theedgemarkets.com/article/never-worldwide-shutdown-all-genting-groups-casinos
https://www.theedgemarkets.com/article/genting-malaysia-market-cap-par-its-parent