After hitting YTD high of RM4.00 (26 July) following the GENM-Walt Disney/21st Century Fox lawsuit resolution, the stock plunged to a low of RM3.08 after a surprise related-party transaction. GENM’s downside may be limited on the back of undemanding valuation at 1.02x P/B (32% below 10Y average of 1.5x) and 15.5x FY20 P/E (8.3% below 10Y average of 16.9x). Technically, GENM is poised for potential downtrend reversal following the spinning top pattern, with upside targets at RM3.35-3.65 in the mid to long term, supported by the dispute resolution with Fox and clearer direction of the outdoor theme park.

Recent negative developments... Optimism of the GENM and Walt Disney/ 21st Century Fox Group lawsuit resolution was outweighed by the negative surprise on related-party transaction (RPT) announcement (6 Aug), involving the proposed acquisition of a 46% stake in a loss-making Empire Resorts for RM539m (1.5x FY18 P/B) from Kien Huat Realty (one of the private vehicles of Tan Sri KT Lim).

…but downside risk limited. GENM’s (downgraded to HOLD with a lower TP at RM3.79) earnings erosion associated with this acquisition could have already priced in with the RM3.98bn wipe off in market cap and the undemanding valuation at 1.02x P/B (32% below 10Y average of 1.5x) and 15.5x FY20 P/E (8.3% below 10Y average of 16.9x) could provide decent support over the near term.

Ripe for a relief rebound after the spinning top formation. Although near term outlook remains challenging after multiple key SMAs supports breakdown, GENM’s share price could stage a potential downtrend reversal following the spinning top formation after plunging 19.3% from YTD high of RM4.00 to RM3.23 yesterday. A decisive breakout above RM3.36 will spur prices higher towards RM3.54 (50% FR) before reaching our LT objective at RM3.65 (61.8% FR). Key supports are pegged at RM3.08 (7 Aug low) and RM3.00 psychological support. Cut loss at RM2.98.

Source: Hong Leong Investment Bank Research - 9 Aug 2019