News

• GenT will dispose its 1,431,059,180 GenHK shares (16.87% stake) to Golden Hope Limited (trustee for a private unit trust owned by Lim family) for a total cash consideration of US$415,007,162.20 (~RM1.71bn) or US$0.29 per share.

Comment

• Neutral View. We are neutral on this disposal as it is a related party transaction and the disposal price of US$0.29 is at the minimum price allowed under the mandate (in spite at a 8.2% premium to 5 days VWAMP) compared to the average purchase cost of US$0.42.

• Better Capital Management. Notwithstanding the above, this disposal allows GenM to monetize its loss-making investment in GenHK which provides minimal income yield (total dividend received RM106m vs total investment of ~ RM4.12bn since 1998). The proceeds of RM1.71bn can be put into better use for its working capital and capex for its expansions, while maintaining net cash position.

• One-off Disposal Gain. Having classified the investment as assets held for sale since year 2015 with a carrying value of RM1.74bn, there will be a one-off accounting gain on disposal of circa RM1.23bn after the reclassification of reserves (previous year revaluation and foreign exchanges gain/losses).

• Negligible Loss of Income. Potential loss of dividend income from GenHK is rather negligible given the inconsistency of dividend payment and the quantum. Dividend received in FY15 was about RM56m, which is circa 3.8% of our FY16 forecasted PATAMI. This level of yield can be easily recouped from interest bearing deposit or interest savings from the proceeds.

Risks

• Foreign exchange risk

• Transaction risk

• Loss of income

Forecasts

• Impute the effect of the disposal into our balance sheet ignoring the one-off gain/loss/reversal arising from the transaction with no change in earnings.

Rating

HOLD

• We opine that growth in 2017 on higher visitors from the amenities under GITP has been largely priced in, impending for more exciting catalysts in 2018. Meanwhile, we are still wary on the uncertain overseas operations, the potential risks in execution and the high cost involved.

Valuation

Maintain HOLD with marginally higher TP at RM4.51 vs RM4.50 previously based on SOP valuations as our previous valuation for GenHK was more conservative.

Source: Hong Leong Investment Bank Research - 4 Oct 2016