Journey to Wealth
Genting Bhd - Disposing Genting Sanyen
News Genting has finally announced the disposal of its first generation Malaysian IPP, Genting Sanyen to 1Malaysia Development Bhd (1MDB) after it was speculated in the Business Times last Thursday (refer to our report dated 10 Aug 2012).
1MDB is paying 1) RM2.34b for the 97.7% equity stake in Mastika Lagenda Sdn Bhd, which owns 75% of Genting Sanyen, and 2) RM38.8m for the lands.
The PPA for this IPP will expire in Nov 2015. The IPP had on 30 Jul 2012 submitted a competitive bid to Energy Commission for a 10-year PPA extension.
Comments Although the disposal price of RM2.34b is lower than the RM3.0b-RM3.5b quoted in the press, it is still a good price in our view.
In our SOP, we value the Malaysian asset at RM529m. We believe our valuation is fair given that Genting will be making RM1.9b disposal gains from this deal, implying a book value of c.RM440m for the asset.
The power asset disposal is expected to be completed by this month while the land disposal is set to complete within 3 years henceforth.
In summary, we are positive on the deal as besides the RM1.9b disposal gain, it will also allow the group to better focus on its core gaming operations.
We believe the group will use some of the RM1.9b disposal gains for its new USD1.0b greenfield 660MW coal-fired power plant in Indonesia.
Outlook The disposal of this IPP will reduce GENTING's FY13E earnings by c.4% but will add RM0.51/SOP share to our valuation.
Forecast No changes to our estimates.
Rating MAINTAIN OUTPERFORM
Valuation We are retaining our target price of RM11.69/share, based on a 10% holding company discount to its SOP, while awaiting the company's 2Q12 results to be released at this month-end.
Risks Risks to our call are 1) poor luck factor and 2) a substantial decline in CPO prices.
Source: Kenanga
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