- We are downgrading Genting Bhd from BUY to HOLD as its share price is close to our fair value. We have raised Genting Bhd’s fair value to RM10.90/share (versus RM10.80/share previously) to account for Genting Plantations’ (GenP) new fair value of RM11.35/share.

- Assuming full conversion of the 929.9mil warrants, Genting Bhd would be trading at a fully diluted PE of 21.1x in FY14F. Genting Bhd’s share base is expected to expand by 25% to 4.6bil after the conversion of warrants.

- Compared to its subsidiaries, Genting Bhd’s PE valuation is cheaper than Genting Singapore’s (GenS) and GenP’s but more expensive than Genting Malaysia’s (GenM) valuation. GenM and GenS are forecasted to trade at 14.9x and 27.4x FY14F earnings respectively.

- Like GenP, Genting Bhd’s warrants are in-the-money. Genting Bhd’s current share price is 33.9% above the warrant’s exercise price of RM7.96/share.

- If all of the warrants were converted, Genting Bhd would be receiving cash of RM7.4bil. We believe that Genting Bhd would be using the cash for investments such as “Resorts World Las Vegas”. As at end-FY12, Genting Bhd’s company level net cash stood at RM3.2bil mainly underpinned by the RM2.3bil disposal of the Genting Sanyen Power Plant.

- We reckon that the development of “Resorts World Las Vegas” (RWLV) would commence next year. RWLV is estimated to cost between US$2bil (RM6.3bil) and US$3bil (RM9.5bil) in total.

- In its previous conference call, Genting Bhd said that it was working on the development and design plans for RWLV. The group had already received approval to set up a showroom for RWLV.

- Genting Bhd has yet to announce its joint venture partner for RWLV. We believe that GenM stands a good chance of being Genting Bhd’s partner due to its track record and financial strength.

- Also, GenM has a database of potential customers from its operations at “Resorts World New York” and “Resorts World Bimini”.

- RWLV would help reduce Genting Bhd’s holding company discount in the future. Genting Bhd would have assets and cashflows of its own. Our current fair value of RM10.90/share assumes a 20% discount to the RNAV of RM13.58.

Source: AmeSecurities