- Reiterate BUY on Genting Bhd with a lower RNAV-based fair value of RM10.85/share (vs. RM11.85/share previously) mainly to account for our new fair value of S$1.54/share for Genting Singapore PLC (GenS). GenS is estimated to account for 47% of Genting Bhd's RNAV.
- We have also excluded earnings from the Malaysian power division but included cash from the disposal of the Genting Sanyen Power Plant in our RNAV calculation.
- Genting Bhd's 1HFY12 earnings were within our expectations but below consensus estimates. Although GenS' results were weak, this was compensated by Genting Malaysia Bhd's (GenM) good results.
- EBIT of the power division fell 20% YoY to RM266.9mil in 1HFY12 due to lower power generation at the Meizhouwan power plant. However on a QoQ basis, power EBIT expanded 13% to RM141.6mil in 2QFY12 as Genting Bhd recognised higher earnings from the Jangi wind farm in India. Jangi wind farm commenced operations in December 2011.
- We understand that Genting Bhd would use part of the RM2.3bil proceeds from the disposal of Genting Sanyen Power Plant to invest in its existing business.
- Recall that the group plans to build a RM3.2bil coal-fired power plant in West Java. The power plant, which would command a capacity of 660MW, is expected to start operations in FY17F.
- Genting Bhd also plans to continue with its exploration activities at the Kasuri oil and gas block in Indonesia.
- We gather that the disposal of the Genting Sanyen Power Plant is not a signal that Genting Bhd plans to exit the power business completely.
- The group has indicated that it would continue to focus on overseas power assets. Currently, Genting Bhd has power assets in China and India. Having said that, we gather that if the group were to receive an attractive selling price for its power assets, then it would not be adverse towards accepting the offer.
- In respect of overseas casino investments, we understand that Genting Group prefers to own a controlling stake. However, if the jurisdiction requires Genting Group to have a local partner, then the group would enter into joint ventures.