This article first appeared in The Edge Financial Daily on January 30, 2019

Genting Bhd
(Jan 29, RM6.89)
Maintain buy with a higher target price of RM8.83 from RM8.40: Thirty per cent upside with 3% financial year 2019 (FY19) forecast yield. Genting Bhd is trading at a trough enterprise value/earnings before interest, taxes, depreciation and amortisation of 5.7 times (-2 standard deviation) versus its five-year mean of 7.3 times and the regional peer average of 11.2 times. Its latest foreign shareholding stands at a low of 43% (as of Dec 14, 2018) since 2015. Genting is our top pick for the sector as it is a cheaper proxy to Genting Malaysia Bhd and Genting Singapore Ltd’s core operations. It is trading at a high holding company discount of 42% (average: 33%). We expect to see a mean reversion in the stock price after it underperformed the market in 2018, and also on the expected recovery of Genting Malaysia. Meanwhile, the outlook for Genting Singapore’s operations remains steady.

Singapore and Malaysia at the fore. Despite the overall negative developments for its Malaysia subsidiary, core operations remain stable as the facilities opened under the Genting Integrated Tourism Plan will continue to yield strong results. A stronger-than-expected performance can be expected, given the milder-than-anticipated tax impact (VIP is taxed at a lower rate) alongside cost-cutting initiatives by its Malaysia subsidiary. There is also potential upside from news flow on the recently filed judicial review, outdoor theme park dispute and developments on Mashpee Wampanoag Tribe’s land entitlement. As for Genting Singapore, its strategy to loosen the tap for VIP customers should contribute to growth in gaming volume and potentially widen market share. Singapore tourist arrivals (+6.6% year-on-year [y-o-y]) remain resilient despite concerns over the trade war since early 2018. On top of that, news flow on the potential venture into Japan will continue to stir investor interest.

Keep an eye on power and oil and gas (O&G). For the nine months of FY18, adjusted Ebitda for its power division grew +20% y-o-y to RM352 million while that of its O&G unit rose 13% y-o-y to RM174.8 million. With the completion of the Banten power plants in late-2017 forecast, Genting now has a total effective capacity of 2,061mw — which should contribute to stable earnings moving forward. Recent developments for its O&G division include an approval granted in June 2018 by the ministry of energy and mineral resources (Indonesia) to develop a gas production infrastructure in West Papua, Indonesia. The gas reserves total 1.7 terrain cu ft — which Genting could monetise for years to come. — RHB Research Institute, Jan 29