• Keep BUY and SOP-derived MYR6.37 TP, 31% upside, 4% yield. Post channel checks, we gathered that 20%-owned TauRx Pharmaceuticals’ (TauRx) HMTM drug will need to undergo 12 months of open-label trials – it could seek regulatory approvals for this Alzheimer’s drug before the trial’s conclusion, though. Favourable trial results may pave way for potential M&A interest on TauRx, giving Genting an early opportunity to monetise – it could contribute MYR1.3-4.3bn to GENT’s FY24F-26F earnings and may potentially fetch an upside of MYR3.47 (base)-13.88 (bull)/share.

• Open-label trial results may not be necessary for regulatory oks. Following TauRx’s announcement of its positive interim data from its Phase 3 clinic trial (LUCIDITY), we gathered from our sources that TauRx will need to go through a 12-month open-label trial – ie participants and researchers both know which treatment the patient is receiving – where results could be ready in May or Jun 2023. Importantly, we gathered that the results from this trial may not be necessary in terms of seeking regulatory approvals. If the final results – which could be ready in a few months’ time – are favourable, TauRx could proceed to seek approvals from the respective regulatory agencies in the UK, US, EU, and potentially China. We believe it will take at least six months to get such approvals (Figure 4).

• M&A could allow for faster monetisation vs IPO, in our view. While GENT did not comment on its strategy with regards to its TauRx stake, any option of value realisation/monetisation is definitely a positive after having invested in the firm since Nov 2012. For TauRx to IPO, it would need to first commercialise HMTM in 2023 and undertake listing in 2024 or later. Conversely, we think M&A/in-licensing agreements may allow for earlier monetisation of GENT’s stake, given that large pharmaceutical firms may have M&A interest in TauRx in order to possess the world’s only effective Alzheimer’s treatment. As a plus, M&A could allow TauRx to leverage on such firms’ resources to expedite HMTM’s speed to market.

• TauRx could contribute MYR1.3-4.3bn to GENT’s FY24F-26F earnings, assuming a 10% net margin (Figure 1). It could also fetch an upside of MYR3.47-13.88/share based on 10x P/E (c.35% discount to peers’ average) on our base and bull cases for FY24F earnings, which translates to hypothetical TPs of MYR9.84-20.25 for GENT (Figures 5 and 6)

• Still BUY. Because HMTM’s path to market and TauRx’s value remains uncertain, we elect not to include the latter in GENT’s SOP valuation for now. We keep our earnings forecasts and SOP-based MYR6.37 TP, which includes a 14% ESG discount based on our proprietary methodology. We keep BUY for the attractive 6.1x FY23F EV/EBITDA valuation vs regional peers’ average c.11x. TauRx’s value accretion aside, we believe GENT’s entities’ recoveries makes it an attractive value BUY with significant upside. At the current share price, investors are essentially getting its non-listed assets (potentially 20% of TauRx) for free. Key risks include a prolonged pandemic, decrease in luck factor, and regulatory risks.

Source: RHB Research - 13 Jun 2022