-  We are upgrading our recommendation on Genting Bhd to BUY from HOLD with an unchanged fair value of RM10.80/share.

-  Our positive stance on Genting Bhd is in line with our recent upgrade in recommendation for Genting Singapore PLC (GenS).

-  GenS accounts for almost 45% of Genting Bhd’s RNAV. Genting Bhd is currently trading at FY14F basic PE of 19.4x and FY15F PE of 16.5x while GenS’ PE multiples are 29.9x for FY14F and 28.1x for FY15F.

-  Genting Bhd’s 1QFY14 net profit was in line with our numbers as GenM’s lower-than-expected results were compensated by GenS’ robust performance. Recall that GenS reported a 19% YoY increase in its VIP volume of business in 1QFY14.

-  GenS accounted for 58.8% of Genting Bhd’s 1QFY14 leisure and hospitality EBITDA, followed by the units in Malaysia (36.0%), UK (4.3%) and US (0.8%).

-  We understand that “Resorts World Las Vegas” (RWLV) is in the development stage. Genting Bhd is expected to start construction works on RWLV in 2HFY14. The construction process is envisaged to take two to three years.

-  Genting Bhd has not decided on the operator of RWLV yet. As the casino licence would only be granted nine months before the opening of RWLV, Genting Bhd would only announce the decision on the operator then.

-  We gather that the reported development cost of US$4bil for RWLV is only a tentative number. Genting Bhd is still finalising the budget for RWLV. Genting Bhd hopes to secure approval for the capex from the authorities in a few months’ time.

-  The tentative cost of US$4bil includes the land cost of roughly US$400mil, which Genting Bhd has already paid for. Hence, the actual development cost would be lower than US$4bil.

-  Debt to equity funding ratio of RWLV is not expected to exceed 60%. Part of the construction cost would also be funded by pre-sales of RWLV’s apartments and hotel units.

Source: AmeSecurities