News

Genting Bhd (GenT) announced that Genting Power China Limited (GPCL) has entered into a Share Sale and Purchase Agreement in respect of the proposed disposal of Coastal Gusu Heat & Power Ltd (CGHP) and Coastal Suzhou Power Ltd (CSP) to Wah Sun Investments Limited (WSIL) for RMB44m (RM22.34m).

CGHP and CSP collectively own 60% equity interest in Suzhou Coastal Cogeneration Power Company Ltd (SCCPC). SCCPC owns and operated a 107MW peaking power plant in Suzhou, Jiangsu Province, China. The Suzhou Power Plant was shut down in 2008.

Comments

We are neutral on the proposed disposal as the power plant in Suzhou is no longer in operations and would not impact the group significantly.

We expect it to be minimal financial impact to the group, given that the plant was shut down in 2008.

The sale of the power plant for RM22.34m is insignificant as it only represents 0.9% of GenT’s FY12 core earnings. The group is expected to record a one-off gain from the disposal in FY13 although marginally.

Given that the power plant has small capacity and already shut down, we believe it would not have significant impact on GenT’s going forward plan. Hence, we are maintaining our view that GenT will continue with the power division rather than exiting it.

Currently, GenT has a total 5 of power plant (1 in China and the remaining are located in various places in India). The group cumulatively has an effective capacity of 1,077MW.

We continue to believe that the group is still in the lookout for more acquisitions of power plant in the coming years. It has plans to list the division when it reaches a total effective capacity of 3,000-4,000MW.

Moreover, funding for any potential acquisition by the group would not be a problem given its large warchest. As at 1QFY13, GenT is in a net cash position of RM5.14bn.

Risks

1) Regulatory risk; 2) Weaker hold percentage; 3) Pandemic breakouts; 4) Appreciation of RM; 5) Higherthan- expected cannibalisation from Marina Bay Sands (MBS) and Macau casinos; 6) Annual renewal on RWS’s junket license.

Forecasts

Unchanged.

Rating

BUY

Positives – (1) Defensive stock; and (2) New sources of earnings from international markets to drive earnings growth.

Negatives – (1) Highly regulated industry; and (2) Leisure and hospitality’s earnings highly dependable on luck factor and hold percentage.

Valuation

Maintain BUY with unchanged TP of RM11.56 based on SOP valuations.

Source: Hong Leong Investment Bank Research - 22 Jul 2013