Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD
Research House: ECMLIBRA

Genting Malaysia Bhd
(Oct 20, RM3.51)
Revise to hold at RM3.56 with higher target price of RM3.52 (from RM3.45): Since we upgraded Genting Malaysia from 'hold' to 'buy' in our 2QFY10 results note dated Aug 27, it has appreciated by 19% with 2.7 sen net dividend per share (1% net dividend yield). This was largely attributable to its success in securing the Aqueduct project, resilient operations at Resorts World Genting and the possibility of rewarding its shareholders with its 1.4 billion shares (18% shareholding) in Genting Hong Kong.

We understand that Genting Malaysia's 3QFY10 results will still be relatively flat year-on-year (y-o-y). Recall that its 6MFY10 revenue and earnings before interest, tax, depreciation and amortisation would have been flat y-o-y had they experienced the normal luck factor. This is impressive given the intense competition from the Singaporean Integrated Resorts. Genting Malaysia has still managed to improve yield management and marketing efforts on non-Johor and Singapore patrons.

Daily win per machine at Empire City at Yonkers Raceway has recently hit as high as US$322 (RM1,006.76) on the gradually recovering American economy. Given Aqueduct's superior location within the New York City limits, its machines may just attain the US$400 daily win per machine that management guided (previous FY11 assumption: US$300). Aqueduct is due to open with 1,600 machines in April 2011.

We understand that rumours of Genting Malaysia's 1.4 billion shares in Genting Hong Kong being distributed to the former's shareholders in specie may not be entirely unfounded. This is to streamline Genting Malaysia's investments and soothe investors who are still jaded with the RM2.1 billion Genting UK acquisition. That said, we believe Genting Malaysia's last price already reflects the full value of its holdings in Genting Hong Kong.

Table games at Aqueduct require at least three years to materialise as changes to the state legislature need to be passed. Genting Malaysia is bidding for the Newham casino but regulators may frown on its already leading position in the UK (and it is not expected to contribute materially to earnings). Our revised ex-cash discounted cash flow-based target price of RM3.52 (RM3.45 previously) warrants our revised call on Genting Malaysia 'hold'. Even including cash, our target price rises to only RM4, or merely 12% upside potential. ' ECM Libra Investment Research, Oct 20


This article appeared in The Edge Financial Daily, October 21, 2010.