• Maintain BUY and SOP-derived MYR6.37 TP, 22% upside, 4% yield. Genting's 20.3%-owned pharmaceutical company TauRx has completed the Phase 3 clinical trial (LUCIDITY) of its Alzheimer's treatment, HMTM, and is moving towards regulatory submission. We are positive on this development, as it marks a step forward for TauRx to potentially bring HMTM to the market, providing greater visibility to its path to profitability.

• Promising initial data. On 31 May, TauRx announced it had completed its LUCIDITY trial. Its executive chairman said "the output indicates that participants receiving HMTM decline at a rate substantially less than is typical in Alzheimer’s, based on published research… [and that] the safety profile is favourable and consistent with previous studies". While its press release does not represent positive top-line results for the LUCIDITY trial, we believe that it puts HMTM in a favourable spot to receive the necessary regulatory approvals. TauRx will provide further data analysis at the 35th Global Conference of Alzheimer's Disease International on 9 Jun.

• Path to the market. If the trial shows positive top-line results, this could pave the way to accelerated regulatory review and approvals, and the subsequent market launch of the drug, which could be by late 2023, according to TauRx's COO. We note that prior to the release of LUCIDITY's initial data, the UK Medicines & Healthcare products Regulatory Agency or MHRA granted TauRx an "Innovation Passport" on 18 May – this is the first stage of the Innovative Licensing and Access Pathway or ILAP, which is intended to accelerate development and approval times, facilitating access to new products.

• Potential TauRx valuations. In a Dec 2015 WSJ article, there were talks of a USD15bn TauRx IPO on the Nasdaq. However, the IPO never materialised after TauRx’ Phase 3 trials failed in 2016. According to DealStreetAsia, in Mar 2018, TauRx claimed a USD2.5bn valuation. In May 2021, its COO claimed that TauRx had secured investment of c.USD700m to fund its research. Assuming a valuation range of USD700m-2.5bn, GENT’s 20.3% stake could be worth 16-58 sen per share, representing a 3-9% enhancement to our current TP.

• Forecast. As we believe that Street, like us, has yet to factor TauRx into GENT’s valuations, there is upside to the consensus TP. We make no changes to our earnings forecasts and SOP TP of MYR6.37, which includes a 14% ESG discount. We chose to not include TauRx in GENT’s SOP for now, pending greater clarity on its valuations. Nevertheless, we maintain our BUY call for its attractive 6.4x FY23F EV/EBITDA valuation vs regional peers' 11x average.

• Key risks include a prolonged pandemic, decrease in luck factor, and regulatory risks.

Source: RHB Research - 2 Jun 2022