News

• Along with the disposal of 16.87% by GenM, GenT is also set to dispose its 20,096,000 GenHK shares (0.24% stake) to same party in Golden Hope Limited (trustee for a private unit trust owned by Lim family) for a total cash consideration of US$5,827,840 (~RM24m) or US$0.29 per share.

Comment

• Neutral View. We are neutral on this disposal as the quantum of RM24m (at the price of US$0.29 per share) is relatively immaterial compared to group consolidated cash level of RM24bn. GenT could have taken a longer term position in GenHK given its healthy prospect instead of selling the stake to a related party.

• Pocketing the profit. The disposal (US$5.8m) allows GenT to divest the illiquid shares at a price of 8.2% premium to 5 days VWAMP and pocket its 40% gain (circa US$1.64 excluding exchange rate effect) in its investment in GenHK given the average cost of purchase was at US$0.21 (US$4.16m).

• No material impact. At a carrying value of US$0.28 (US$5.8m) as at 30 June 2016, a gain on disposal (before transaction costs) of approximately S$1.6 million (approximately RM4.9 million) is expected to be recognized in the consolidated income statement arising from a reversal of previously recognized fair value gain on the Sale Shares from reserves.

Risks

• Foreign exchange risk.

Forecasts

• Unchanged.

Rating

• BUY

• We opine that the magnitude of discount on this cash rich leisure giant against its peers is unjustified in spite at holding company level given its diversified business and it houses various expansion plans which are set to bear fruit from 2017 onwards.

Valuation

• Maintain a BUY call with an unchanged target price of RM9.55 based on our SOP-derived TP.

Source: Hong Leong Investment Bank Research - 4 Oct 2016