Highlights

• BUY the cheaper proxy… To ride on the growing steam of GenM’s (BUY, RM5.10) Genting Integrated Tourism Plan (GITP) multiyear growth story, we advocate GenT as a cheaper proxy, which is trading at 17% discount of its subsidiary’s EV/EBITDA.
   
• Stability in Singapore… We see more optimism in 52.9%- owned GenS ( HOLD , S$0.92 ) going forward as it continues to reap the benefits from cost rationalization and cleaner slate of balance (normalized level of bad debt provision). Though uncertain, possible venture into Japan casino market remains an upswing.
   
• Unjustified holding discount… While there is no uniform holding discount benchmark, we deem GenT’s current holding discount of >30% (above 2SD of 5-year average of 16.1% as shown in Figure #1 ) is unjustified as we expect both subsidiaries, GenM and GenS, to fare better going forward.

• Other businesses are free… Putting into perspective, the sum of GenT stakes in both GenM and GenS (based on current market prices) is already higher than the entire market cap of GenT. In other words, the rest of the businesses, including plantation, property (under 51.3%- owned GenP ( HOLD , RM11.78 )), power, oil & gas, etc. which may be worth more than RM10bn are not accounted by the market (see Figure #2) .

• Expansion in power segment to mature… Rmb7bn Phase II 2x1000MW Meizhou Wan in Putian, China (JV with SDIC) and US$1bn 660MW in Banten, Indonesia (55% stake) are expected to contribute positively to its bottom line in 2017. These will boost its effective net operating capacity from current 714MW to 2,056MW in 2017.

• Beneficiary of weak Ringgit … thanks to its overseas operations in UK, US, SG, Indonesia (plantation), China (power) and India (power). Potential translation gain on the proceeds from those businesses and US dollar denominated assets could yet turn out to be another sweet spot.

Risks

• 1) Regulatory risk; 2) Weaker hold percentage; 3) Pandemic outbreaks; 4) Appreciation of RM; and 5) Competition from regional casinos.

Forecasts

• Unchanged.

Rating

BUY ↔

• We believe it is a cheaper proxy to buy into GenM’s GITP growth. Its forward EV/EBITDA valuation of 8.2x is relatively cheaper than GenM (9.9x) and regional peers (11-13x). Besides, as we expect both GenM and GenS to fare better going forward. We see limited downside given its deep valuation and the unjustified holding company discount of >30%.

Valuation

• Reiterate our BUY call with unchanged SOP-derived TP of RM10.29 (see Figure #2 )

Source: Hong Leong Investment Bank Research - 16 Jan 2017