News

Yesterday, Genting Malaysia Bhd (GENM) announced that its wholly-owned subsidiary Genting Highlands Tours and Promotion Sdn Bhd (GHTP) is selling two pieces of leasehold land in Segambut (Segambut Land) measuring 380,902 sq ft together with buildings thereon, for RM65.8m to Esprit Icon Sdn Bhd, the wholly-owned subsidiary of GENM’s sister company’s Genting Plantation Bhd (UP; TP: RM9.50)

Upon completion which is estimated by 1Q16, GHTP will take up tenancy of 100,500 sq ft of this land for two years with total rental of RM750,000, payable on or before 7th day after the commencement of the rental term with option to extend for another one year.

Comments

To recap, GENM, via GHTP, bought this land together with the Wisma Genting building in another related party transaction (RPT) from parent company’s Genting Bhd (GENTING, OP; TP; RM8.36) in Dec 2009 where GHTP paid RM24.5m for the Segambut Land.

The market value of RM68.5m for Segambut Land was appraised by Messrs Raine & Home International Zaki + Partners Sdn Bhd which is the same valuer when GHTP acquired it from GENTING in Dec 2009.

Although this is yet another RPT after the acquisition of the UK online gaming company from GENTING merely two weeks ago, we are positive on this disposal to unlock the land’s investment value. Based on FY14 accounts, GENM could expect to realise a gain of RM43.3m from this disposal. Nonetheless, the impact to earnings is immaterial.

This disposal also appears to be a cash raising exercise at GENM level as it currently undergoes the 10-year refurbishment program at the Genting Highlands.

Outlook

The RM5b 10-year refurbishment program will be a structural change to its home turf operations and acts as an earnings catalyst from 2016 onwards. The theme park is on track to be ready by end-2016/early 2017 with no cost overrun at this juncture.

On the other hand, the yield management initiative should help to improve earnings while the Resorts World New York City’s numbers should be sustainable. Resorts World Bimini’s new 300-room luxury hotel is expected to reduce its operating loss and break even in 2H15. However, the UK operations could continue to see tougher times due to its VIPcentric nature. Hopefully with the opening of Resorts World Birmingham, the UK operations could improve further. Changes To

Forecasts

No changes to FY15-FY17 estimates.

Rating

Maintain MARKET PERFORM

Valuation

Price target is maintained at RM4.41/SoP share.

Risks to Our Call

Poorer luck factor.

Source: Kenanga Research - 16 Oct 2015