News  GENTING Bhd made the following proposals: (i) a special cash dividend of RM0.50/share less 25% income tax, (ii) non-renounceable restricted 1-for-4 warrants at an issue price of RM1.50/warrant; and (iii) exemption to Kien Huat Realty Sdn Bhd (“KHR”)and persons acting in concert (“PACS”) from the obligation to undertake a mandatory take-over offer on the remaining voting shares in GENTING not already held by KHR and the PACS upon the exercise of the warrants by KHR and/or the PACS.

 The proposed special cash dividend is conditional upon GENTING obtaining all the relevant approvals for the proposed restricted issue of warrants and the proposed exemption. The proposals above are interconditional with one another.  The shareholders have an option to reinvest some or all the special cash dividend back into GENTING through the subscription of warrants, similar to a dividend reinvestment scheme.

Comments  We were surprised by this latest move as the last time GENTING paid such a big dividend was 30 sen in 3Q07 in a memorial honoring the late founder of the group.

 Although shareholders may opt for not subscribing to the warrants, we believe the offer is attractive as the exercise price of RM7.96/share is at a 13% discount to yesterday’s closing price with a 5-year exercise period. In addition, the final exercise price may be adjusted downwards but in any event will not exceed RM7.96/share.

 We believe the proceeds from the warrants conversion is likely to use for its Las Vegas project. Based on the maximum scenario with up to 923.7m warrants, GENTING should raise c.RM7.35b from the conversion. This matches its plan for the USD2b Resorts Word Las Vegas.

 In all, we are positive on these proposals where shareholders will gain a cheaper entry to GENTING’s earnings prospects as the warrant is “in-the-money”.

Outlook  With its cash pile of RM19.2b as at Jun-13, the group has the financial strength for M&A activities or greenfield projects such as the new Japanese market. Meanwhile, the Malaysian operations remain resilient while the RWS and UK operations may be exposed to risk volatility due to their VIP-centric profile. In addition, the RWNYC generates fairly stable earnings. CPO prices are expected to recover in 2H13, which should benefit its plantation unit.

Forecast  We have cut FY13-FY15 estimates by 11%, 1% and 2% respectively. Please refer to our separate results review note on GENTING today.

Rating   Maintain OUTPERFORM

Valuation  Our new price target is now at RM12.03/share (from RM12.28/share previously) based on an unchanged 20% holding company discount to its SOP valuation.

Risks  Poor luck factor.

 A sustained decline in CPO prices.

Source: Kenanga