Potential catalyst from a non-gaming source

The Wall Street Journal (WSJ) reported that 20.7%-owned TauRX (Not Listed) may be listed at a valuation of ~USD15b in 2017. We estimate that at USD15b, TauRX’s listing will add MYR10.4b or 40% to our SOP for GENT. This implies a 40% upside from this one listing alone. Even without TauRX, our SOP-TP of MYR9.05 for GENT already implies 27% upside. If TauRX is valued at USD15b, our SOP-TP surges to MYR11.35 and implies a whopping 60% upside. GENT is one of our top BUY pick for the market.

20.7%-owned TauRX to list at USD15b in 2017?

On 30 Dec 2015, WSJ reported on the potential listing of TauRX (link). TauRX is a Singapore-based developer of Alzheimer’s drugs and counts Temasek, DBS Group (DBS SP, SELL, TP: SGD16.05) and GENT as investors (link). TauRX states that it has raised ~USD350m (MYR1.5b) to date, of which 20.7% was raised from GENT. We understand that GENT has committed to invest USD120m (MYR522m) in TauRX in total, which means that it will invest another ~USD48m (MYR208.8m).

Potential 40% upside from this one listing!

The WSJ quotes ‘people familiar with the matter’ as saying that TauRX could be listed at a valuation of ~USD15b (MYR65.3b) in 2017 although no basis for the valuation was cited. Notwithstanding, we estimate that if TauRX were listed at USD15b (MYR65.3b), it will add USD2.4b (MYR10.4b) to our GENT SOP valuation ([USD15b TauRX valuation X 20.7% share holding – USD120m investment] – 20% holding company discount). Our current SOP assigns no value to TauRX yet. This translates into a whopping 40% accretion to GENT’s current market capitalization.

Reiterate BUY; whopping 60% total upside possible

Even without TauRX, our SOP-based TP of MYR9.05 already implies 27% upside. We conservatively maintain our estimates and SOP. While the largest listed Alzheimer’s drug centric company is Axovant Sciences (AXON US, Not Rated) at only USD1.6b market cap, older Alzheimer’s drugs by larger pharmaceutical companies (Aricept, Exelon, Radzadyne, Namenda and generic variations) generate sales of >USD6b p.a.. If TauRX is valued at USD15b, our TP surges to MYR11.35, and implies a whopping 60% upside. TauRX supports our view that GENT remains deep in value.

Source: Maybank Research - 6 Jan 2016