News

• GenM proposed shareholders’ mandate for the disposal by Resorts World Ltd (RWL) of the entire 17.81% stake in Genting Hong Long Ltd (GenHK) for at least RM1.68bn, or RM1.18/share.

• The disposal may be carried out in the manner of open market disposal, off-market disposal, or both, and has a validity period of 1 year from the date of approval.

Comments

• We are positively surprised by the proposed disposal as this would allow GenM to entirely focus on its leisure and hospitality in the highlands.

• The group’s investment in GenHK is considered a non-core investment that engages in the business of cruise and cruise-related operations and leisure, entertainment and hospitality activities.

• Furthermore, the group’s move to monetizing the stake in GenHK will be beneficial as the disposal would enhance GenM’s balance sheet capacity to pursue other core investments. We also believe the disposal proceeds would also fund the group’s Genting Integrated Tourism Plan (GITP).

• Apart from funding GITP, we opined that GenM may have the plans to further refurbish its existing hotels and casinos, or may even carry out the initiative in expanding its hospitality division. We would not dismiss any possibility on the development plans for new hotel towers in the highlands to increase its room inventories.

• The proposed disposal, upon completion, would result in a one-off gain hence increasing GenM’s EPS. However, the actual gain arising from the proposal is not determined at this juncture. To note, the investment in GenHK is measures at its fair value based on its quoted share price and in 2009, this investment was impaired to RM0.29/share.

Risks

• Regulatory risk;
• Weaker hold percentage;
• Pandemic breakouts;
• Cannibalization from Macau & Singapore;
• Appreciation of RM; and
• Bill on full gaming operations in New York not approved.

Forecasts

• Unchanged.

Rating

HOLD

Positives

• (1) Defensive stock; (2) Monopoly in the industry; and (3) New and potential sources of earnings from international markets to drive earnings growth

Negatives

• (1) Highly regulated industry; and (2) earnings highly dependable on luck factor and hold percentage

Valuation

Maintain HOLD with unchanged TP of RM4.16 based on SOP valuations.

Source: Hong Leong Investment Bank Research - 12 May 2015