- We are downgrading Genting Malaysia Bhd (GenM) from BUY to HOLD as its share price is close to our fair value of RM4.30/share. We reckon that GenM is fairly valued for now.

- We have tweaked downwards GenM’s FY13F to FY14F earnings forecasts by 2% to 3% to account for the closure of the outdoor theme park at “Resorts World Genting”.

- Going forward, newsflow for GenM would come in the form of a potential partnership with Genting Bhd on “Resorts World Las Vegas”. We think that this could take place in FY14F.

- GenM is currently trading at an FY14F PE of 15.1x compared with Genting Bhd’s 14.6x and the simple average PE of 15.1x of the casino companies in Macau.

- In the past seven years, GenM’s PE ranged from a low of 8.6x to a high of 30.1x. Average PE was at 15.9x.

- Although the addition of gaming tables and 1,300 rooms are expected to boost GenM’s profitability, these are envisaged to come in FY16F only.

- When an additional 1,000 rooms came on-stream at First World Hotel in mid-FY05, turnover of GenM’s leisure and hospitality division climbed 23.6% in FY05. Hotel room inventory rose 17.8% in FY05. GenM’s EBITDA grew 31.4%.

- When another 1,000 rooms were completed at First World Hotel at end-FY05, the division’s turnover increased 8.9% in FY06. EBITDA strengthened 11.1%.

- We estimate capex for the new 1,300 hotel rooms at RM300mil to RM500mil. Capex for the new outdoor theme park is anticipated at RM400mil.

- As mentioned in a previous report, these would be included under the RM3bil capex, which would be spread out over five years.

- Financing the capex is not expected to be a problem for GenM. The group was in a net cash position of RM2.1bil as at end-FY12. We have assumed a capex of RM1.1bil for FY13F and RM700mil for FY14F.

Source: AmeSecurities