News  Yesterday, Genting Malaysia Bhd (GENM) announced that its wholly-owned unit GENM Capital Bhd had received approval from the Securities Commission (SC) for establishment of a Medium Term Note Program (MTN) with an aggregate nominal value of RM5b.

 The Proposed MTN, which is irrevocably and unconditionally guaranteed by GENM, has been assigned an initial long-term rating of AAA by RAM Rating Service Bhd.

 The MTN program will have tenure of 20 years from the date of first issuance with coupon rate and coupon payment frequency to be determined later.

Comments  This does not come as a surprise given that its current net cash of RM3.32b (as at Jun 2014) is insufficient for the RM5b 10-year refurbishment program which is under Genting Integrated Tourism Plan (GITP).

 This will transform GENM’s financial position from net cash to net debt of RM1.68b or net gearing of 0.11x based on Jun 2014 figures.

 We are not concerned as given its strong operating cash flow of RM2b and above, GENM should have no problem of maintaining the loan. In addition, we keep our optimism of the GITP program as it will change the image of the highland resort from a purely casino resort to a family leisure resort.

Outlook  The RM5b 10-year refurbishment program will be a structural change to its home turf operations and act as earnings catalyst from 2016 onwards. On the other hand, the yield management initiative should help to improve earnings while the RWNYC numbers should be sustainable. However, the UK operations could continue to see tougher times due to its VIP-centric nature.

Forecast  We are keeping our FY14-FY15 estimates unchanged for now.

Rating Upgrade to MARKET PERFORM from UNDERPERFORM previously

Valuation  Share price had retreated more than 8% in less than two weeks since our downgrade call on 29 Aug 2014.

Current price offers a mere c.4% upside to our target price, which is not compelling enough to warrant an outright OUTPERFORM call.

 As such, our new rating is back to MARKET PERFORM with unchanged price target of RM4.41/SoP share.

Risks to Our Call  Unfavourable luck factor.

Source: Kenanga