RHB Research has kept its buy recommendation for Genting Bhd but with a lower target price (TP) of RM8.60 from RM8.70, giving the counter a 61% upside plus 5% yield.
Potential weaker-than-expected upcoming 4Q19 Genting Malaysia Bhd results and the coronavirus outbreak prompted the research house to cut FY19-21 earnings for Genting.
It said upside for the stock remains capped until the outbreak stabilises and public fears are allayed in Malaysia and Singapore. The research house still likes Genting as a cheaper proxy for Japan casino play and its deep value proposition, trading at an undemanding 4.6x enterprise value (EV)/ earnings before interest, taxes, depreciation & amortization (EBITDA) versus regional peer average of 11x.
RHB Research expects Genting Malaysia to post weaker 4Q19 results due to weaker-than-expected visitor arrivals with the MIER Consumer Sentiment Index falling to its lowest level since 2Q17.
“We believe Genting’s FY19 EBITDA could range between RM7.5 bil and RM7.8 bil. We also see some downside to our forecast share of loss from Empire Resorts of RM38 mil in 4Q19 due to a possible one-off staff severance cost following the integration with Genting Malaysia’s New York team,” said RHB analysts Lee Meng Horng and Loo Tungwye.
Resorts World Genting stated that all tour bookings from China have been cancelled for February. Similarly, Singapore has stepped up its border control measures by barring entry to all Chinese visitors and foreigners with a recent history of travel to China. It also raised the Disease Outbreak Response System Condition (DORSCON) alert level from yellow to orange given the heightened risk to public health.
The Chinese form the largest group of visitors to Singapore (18%) and it should negatively affect Resorts World Sentosa (RWS). As such, Genting’s 1Q20 earnings (at least) will be affected.
However, visitor arrivals should recover once the outbreak stabilises. At the peak of the Severe Acute Respiratory Syndrome (SARS) outbreak, Genting’s 2Q03 profit before tax (PBT) for the leisure and hospitality segment declined 26% year-on-year (yoy).
However, it posted strong 2H earnings as that for the full year only declined 5%. Its share price recovered within one to two months after posting a decline of 17% in February-April 2003.
“Despite Resorts World Singapore only opening in 2010 (seven years after the SARS outbreak), we still expect the share price to rebound strongly once the coronavirus outbreak stabilises,” says RHB Research.
The research house has also kept its buy recommendation for Genting Malaysia, with a lower SOP-based target price of RM3.66 from RM3.96, giving it a 23% upside and 5% yield. Genting Malaysia’s potentially weaker-than-expected 4Q19F results and the coronavirus outbreak have prompted the research house to revise down FY19-21F earnings.
It believes upside for the stock will be capped until the outbreak starts to stabilise. However, it still likes the counter for its long-term prospects, given the trough valuation, while its potential special dividend should serve as a support to the share price. – Feb 11, 2020
