Malaysian conglomerate Genting Berhad is preferred over its Genting Malaysia Bhd casino unit – because of its greater diversity of business interests and its relatively undemanding share valuation – says a note from Morgan Stanley Asia (Singapore) Pte.
Genting Bhd is the investment holding and management company of Genting Group.
“We think consensus expectations of growth in Malaysia [gaming] remain too high, and overseas earnings remain affected by losses in Bimini,” said analysts Xin Jin Ling and Xiangyu Hu, referring firstly to Genting Malaysia’s Resorts World Genting casino resort in that country and secondly to its majority-owned casino resort venue Resorts World Bimini in the Bahamas.
“Expectations of growth with the refurbishment of Resorts World Genting are already priced in, and we see higher operating expenses with the opening of Resorts World Birmingham and lower earnings with higher interest costs,” added the Morgan Stanley team.
Resorts World Birmingham, in the United Kingdom’s second-ranked city by population, is scheduled to open in the second half of 2015, according to a June research note from Japanese brokerage Nomura.
Morgan Stanley’s analysts point out that even within the gaming industry segment, Genting Bhd has exposure not only to Genting Malaysia’s casino operations in Malaysia, the United States, the United Kingdom and the Bahamas, but also to another unit – Genting Singapore Plc – and its investment in the Resorts World Sentosa casino resort in Singapore. Genting Singapore and some partners also broke ground in February on a US$1.8-billion casino resort on South Korea’s Jeju Island.
Morgan Stanley said of Genting Bhd: “We expect a rebound in earnings in 2H15, with resilient mass market growth in Singapore. Earnings contribution is also more diversified with increased contribution from the oil and gas operations.”
Genting Bhd had reported second quarter revenue of nearly MYR4.17 billion (US$991.9 million) which was down 8 percent quarter-on-quarter and down 8 percent year-on-year, but in line with Morgan Stanley estimates. No interim dividend was proposed by Genting Bhd, but its management stated the conglomerate would pay a year-end dividend.
Morgan Stanley described the valuation of Genting Bhd’s shares as “attractive” – measured by 2016 estimates – based on enterprise value divided by earnings before interest, tax, depreciation, and amortisation. They said the 5.5 times value thus calculated was “one of the lowest amongst gaming peers”.
Genting Malaysia reported second quarter revenue of MYR2.0 billion; down 5 percent quarter-on-quarter but up 4 percent year-on-year. Net profit however fell 9.2 percent year-on-year in the period, but the firm declared an interim, single-tier dividend of MYR0.028 for each ordinary share of MYR0.10.
In June, Genting Malaysia chairman and chief executive Lim Kok Thay said the company would review its investment opportunities at home and abroad after failing to secure a second casino licence in New York, in the United States.
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”Given that the blanket casino closure [in Macau due to Typhoon Mangkhut] happened on an all-important weekend day… we expect that somewhere between MOP1.1 billion [US$136.2 million] and MOP1.5 billion in GGR will be lost”
Analyst at Union Gaming Securities Asia