Maintain NEUTRAL But Capitalise on ‘trough Target Prices’

• With the Wuhan coronavirus spreading rapidly, we opine that it may have a materially negative impact. Although we leave our earnings estimates and target prices unchanged for now as it is early days yet, we propose ‘trough target price’ of MYR2.65 / MYR5.55 / SGD0.80 for Genting Malaysia (GENM) / Genting Berhad (GENT) / Genting Singapore (SGX:G13).
• There could be long term upside should Malaysia roll back some of the 10ppts casino duty rate hike and/or Singapore roll back some of the 50% casino entry levy hike.

Wuhan Pandemic Resembles SARS One, in Our View

Pandemics are not new to Malaysia or Singapore…

• With the Wuhan coronavirus infecting 2,798 individuals (four each in Malaysia and Singapore) and claiming 80 lives (nil each in Malaysia and Singapore) as at 27 Jan 2020, we examine its potential impact on the casino industries of Malaysia and Singapore.
• On 31 Dec 2019, China alerted the World Health Organisation (WHO) to several cases of pneumonia in Wuhan. On 7 Jan 2020, China confirmed the pneumonia cases were caused by a coronavirus, which is a family of viruses that include the common cold, Severe Acute Respiratory Syndrome (SARS) and Middle East Respiratory Syndrome (MERS). This new virus was temporarily named ‘2019 novel coronavirus’.
• In this report, we shall substitute the name ‘2019 novel coronavirus’ with ‘Wuhan coronavirus’.

Key information on major outbreaks beginning in 2000

SARSH1N1MERS

Source: World Health Organisation (WHO)

• Taking a leaf out of history, we examine the impact (if any) SARS, H1N1 and MERS had on the casino industries of Malaysia and Singapore.
• To begin, each pandemic was different from the other. SARS was moderately contagious and moderately lethal. H1N1 was very contagious but not very lethal. MERS was not very contagious but very lethal.
  • For the SARS pandemic, there were 5 cases and 2 deaths in Malaysia and 238 cases and 33 deaths in Singapore.
  • For the H1N1 pandemic, there were 7,066 cases and 77 deaths in Malaysia and 1,217 cases and 19 deaths in Singapore.
  • For the MERS pandemic, there were nil cases in Malaysia (that said, there was a single MERS related fatality earlier in Apr 2014) and Singapore.

… but only SARS had a materially negative impact

• We first study tourist arrivals to Malaysia and Singapore commencing Jan 2000. This is because the Singaporean integrated resorts (Marina Bay Sands and Resorts World Sentosa) were not opened until 1H10. While Genting Malaysia’s Resorts World Genting largely relies on domestic tourism (73% of total visitor arrivals are day trippers), we note that international and domestic tourism trends are similar during pandemics in that no rational tourist, international or domestic, wants to venture into enclosed areas (e.g. planes, casinos) during pandemics lest they be infected.
• A cursory glance of the two charts in attached PDF report (Fig2 & Fig3) indicate that the H1N1 and MERS pandemics did not have a materially negative impact on the tourism industries of either Malaysia or Singapore.

Capitalise on ‘trough Target Prices’ That May Arise

• At this early stage, we opine that it is not easy to quantity the earnings impact that the Wuhan pandemic will have on the casino industries of Malaysia and Singapore. That said, learning from the SARS pandemic, we note that 12M forward P/BV valuations trough when deaths accelerate and not when deaths peak.
• We propose ‘trough target prices’ of
  • MYR2.65 on 0.8x CY20E P/BV for Genting Malaysia,
  • MYR5.55 on 0.6x CY20E P/BV for Genting Berhad and
  • SGD0.80 on 1.2x CY20E P/BV for Genting Singapore (SGX:G13)
  for investors to capitalise on should their share prices hit those levels.

Remember the ‘spring’ After the SARS ‘winter’?

• We implore investors not to be averse to the casino industries of Malaysia and Singapore during this seemingly uncertain time. During the SARS pandemic, Beijing introduced the now ubiquitous Individual Visit Scheme o Macau and the Malaysian government considered reviewing casino duty rates for Resorts World Genting. There could be upside for Genting Malaysia, Genting Berhad and Genting Singapore if the Malaysian government rolls back some of the 10ppt casino duty rate hike and/or the Singapore government rolls back some of the 50% casino entry levy hike during this Wuhan pandemic.

Source: Maybank Research - 28 Jan 2020