Highlights

• Genting Bhd (GenT) announced that DNA Electronics Limited (DNAe), an indirect 82.1% -owned subsidiary of GenT has completed the acquisition of the entire issued share capital of NanoMR, Inc. for US$24m (or RM85.2m).

• NanoMR is a development-stage diagnostics company based in New Mexico, USA, carrying out R&D on technologies for genetic analysis and sequencing.

• Upon completion, DNA Electronics US (DNAe US), wholly owned subsidiary of DNAe, will be merged into NanoMR with NanoMR as the surviving entity and a wholly-owned subsidiary of DNAe.

Comments

• Although the announced acquisition is not new to the gaming group, we are still surprised as the group seems to diversifying its operations deeper into the medical field, a non-core business segment.

• To recall, GenT has invested US$111.8m investment for a 20% equity stake in a Singapore-based pharmaceutical company, TauRx Pharmaceuticals in Nov 2012. It is said that he investment is to support TauRx’s development treatments based on a Tau-based approach to diseasemodifying and preventive treatment of Alzheimer’s and frontotemporal dementia (FTD).

• Although the funding of the acquisition was not mentioned, we believe it will be funded through GenT’s internally generated funds given its small quantum and large warchest.

• While we view diversification positively, we are neutral on the announced acquisition and do not expect the acquisition to result in a significant change to the group’s earnings over the short -term period, given its large earnings base, mainly coming from its casino businesses.

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 ofearnings from international markets to drive earnings growth.

Negatives

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

Valuation

• SOP-derived TP and recommendation maintained at RM10.64 and BUY, respectively.

Source: Hong Leong Investment Bank Research - 19 Jan 2015