Dragon Leong blog

Genm & Genting - Catching up with Regional Peers

dragon328
Publish date: Mon, 09 Jan 2023, 12:19 PM
A path to hidden gems in Bursa

Genm and Genting Bhd are listed in Bursa Malaysia with market capitalization of about RM16.4 billion (at current share price of RM2.64) and RM18.2 billion (at RM4.71) respectively. These 2 stocks are trading far below their previous peaks of RM5.50-6.00 and RM8.00-9.00 levels in 2017, though the Covid-19 pandemic is largely over in Malaysia and Singapore.


Big Discount in Genting Valuation

Genm is trading at FY2023 prospective PER of just 12x and EV/EBITDA of just 6.2x, while Genting is trading at 2023 prospective PER of 9x and EV/EBITDA of 6.3x. In comparison, its peers in Macau have been loss making in past 2 years and trading at higher prospective 2023 PER of 10x to 80x. In terms of EV/EBITDA, Macau peers are trading at 24x to 29x prospective 2023 EBITDA. Hence, Genm and Genting are trading at 75% discount to Macau peers in terms of EV/EBITDA on prospective 2023 earnings.

2023 PER

2023 EV/EBITDA

2019 EV/EBITDA

Genm ^

12x

6.2x

7.4x

Genting ^

9x

6.3x

6.3x

Sands China *

14x

24.3x

14.5x

MGM China *

20x

24.1x

10.0x

Wynn Macau *

80x

24.9x

11.7x

SJM *

10x

28.8x

12.2x

*figures taken from MarketScreener      ^figures from Maybank Research


Share Price Performance

Compared to regional peers, both Genm and Genting have been big laggards and shall start playing catch-up in next few weeks. Let’s take a look at share price performance of regional peers in past 6 months:

As can be seen from the above charts, Genm share price is still some 3% - 5% below the level of RM2.90-3.00 in Aug 2022, while Genting share price just managed to catch up back to Aug level.







The share price of Macau casino operators (Sands China, MGM China, Wynn China & SJM) has gone up some 50% to 100% in past 6 months and up 80% to 200% since Oct 2022 low. Some may argue that the share price rebound from Oct 2022 low was due to the renewal of casino license of these Macau casino operators in Dec 2022, but it is not entirely true as their share prices are up a lot compared to 1 year ago before Macau committee announced the license tender. Furthermore, the risk of losing a casino license was to impact only one of the 6 incumbents (due to competition from Genting), but the share price of all casino operators have gone up well above the Oct 2022 level when Genting was announced as a competitor to the 6 casino license bid. This clearly shows that investors are having confidence in gaming stocks again after the Covid-19 pandemic is largely over and China has just re-opened its border to tourists abroad.

Another casino operator, Naga Corp that owns a casino in Cambodia, has also seen its share price up by 90% from Oct 2022 low. This re-affirms the conviction that gaming stocks are back to investors’ favourites.

The lacklustre share price performance of Genm and Genting in 2H 2022 was likely due to the political instability in Malaysia ahead of General Election 15, and the sudden drop in late Nov 2022 was due to the fear of the Islamic Party PAS taking control of the federal government. Now that GE15 is over with the moderate Pakatan Harapan forming a unity government with Barisan Nasional, Sarawak GPS and Sabah GRS, there should not be any more issue of Malaysia becoming an Islamic state.

With Malaysia and Singapore welcoming China tourists with open arm from 8th Jan 2023, casinos and the tourism sector in Malaysia and Singapore will do very well in 2023. I expect the share price of Genm and Genting will play catch-up with regional peers, and rebound some 50% to RM4.00 and RM7.00 level in next few weeks.

If Genm and Genting were to catch up on EV/EBITDA valuation with their Macau peers (at minimum 24.1x), Genm and Genting would re-rate by almost 4x to RM10.25 and RM18.00 respectively, purely based on the rebound in business of their existing casino operations in Malaysia and Singapore.

If there is other good news along the way, such as for Genm’s Empire Resorts to get a full-scale casino license in New York or for Genting’s subsidiary TauRx to get approval for its Alzheimer treatment drug, or for Genm & Genting to inject their US gaming facilities into a new US listing, then their share price will jump multi folds.

For more details of these potential catalysts and potential value creation to Genm and Genting, please refer to my recent write-up as per link below. I have amended the article to correct my miscalculation on Genm’s effective shareholding in the new US listing.

https://klse.i3investor.com/web/blog/detail/dragon328/2023-01-06-story-h-301897649-Genting_Bhd_Strikes_Gold_in_the_US

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1 person likes this. Showing 1 of 1 comments

dragon328

ya, the previous article too. It has travelled far abroad. Can sense it as readership increased by thousands overnight.

2023-01-10 09:23

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