News

• TauRx reported an abstract from the First Phase 3 Results (TRx-015) for LMTX at the 2016 Alzheimer's Association International Conference (AAIC) in Toronto, Canada on 27th July which showed a marked beneficial effect on key measures of Alzheimer’s disease in patients with mild or moderate forms of the disease.

• It is perceived as failure by most quarters of its clinical trials in large study (85% of the sample size) when LMTX is used with other standard Alzheimer's drugs despite benefits seen when the drugs is taken alone (monotheraphy).

• However, Taurx believes the positive LMTX monotherapy effect is real and the findings from the phase 3 study are supported by a second phase 3 study (TRx-005 which will be presented in Q4) and still intends to file for approval with European and U.S. regulators as a monotheraphy drug.

Comment

• All is not lost. With the latest development, we believe that all is not lost with TauRx given the impending two phase 3 study results in coming months. However, it seems inevitable that TauRx would need more time to study on the efficacy loss when LMTX is taken with other drugs and hence the subsequent monetization plan may be further pushed back.

• 3 Phase 3 Trials. To recap, there were three separate Phase 3 clinical trials on the second generation TAI, LMTX: two in Alzheimer's disease (TRx-015 & TRx-005) and one in the behavioural variant frontotemporal dementia (TRx-007, which will be presented at the 10th International Conference on Frontotemporal Dementias (ICFTD), 31 August-2 September).

• Deep value remains. We still prefer GENT as our top pick for the sector given its undemanding deep valuation despite its geographically diversified business segments and with various expansion plans such as Resorts World Las Vegas, GITP and Resorts World Jeju housed under parent group set to bear fruit from 2017 onwards.

Risks

• 1) Regulatory risk; 2) Weaker hold percentage; 3) Pandemic breakouts; 4) Appreciation of RM; and 5) Higher-thanexpected cannibalisation from Marina Bay Sands (MBS) and Macau casinos.

Forecasts

• Unchanged as we did not impute the valuation of TauRx given the uncertainty.

Rating

• BUY

• As we have not imputed any valuation of TauRx into our SOP, our TP of RM9.88 remains unchanged and we opine that the sell down on speculation on TauRx presents a chance for long term investors to take position in this cash rich leisure giant.

• Positives – (1) Defensive stock; and (2) New sources of earnings from expansion plans to drive earnings growth.

• Negatives – (1) Highly regulated industry; (2) Luck factor; (3) Regional competition.

Valuation

• Maintain a BUY call with an unchanged target price of RM9.88 based on our SOP-derived TP.

Source: Hong Leong Investment Bank Research - 28 Jul 2016