Kenanga Research has OUTPERFORM call on Genting Bhd

KUALA LUMPUR: Kenanga Research resumes coverage on Genting Bhd with OUTPERFORM recommendation at a target price of RM12.68 per share, based on 10% discount to its sum of parts (SOP) valuations. Genting is is one of the few Malaysian's world-class companies around, yet with attractive valuation. Trading at calendar year (CY) 12 11.4x price earnings ratio (PER), Genting's valuation does not match its robust earnings quality and assets profile.

Its prime asset, casino operates in a highly regulated business environment and is at par with other international players. We believe the recent sell-down in the equity markets globally, which Genting is not spared, provides a buying opportunity to buy into Genting for its casino exposures in Malaysia, Singapore, UK and now USA.

1. Global player, but Malaysian valuations

At 11.4x CY12 PER, Genting is the cheapest casino stock globally, versus peers' average of 16.5x. The huge discount in valuation is mainly because GENT is not a pure casino play.

However, we believe the 1/3 discount compared to its peers is unjustifiable given that >80% of earnings are derived from casino operations and it has solid financial strength where it is in net cash position.

In view of management's intention to divert non-casino operations, the valuation gap should draw closer, if not at par.

2. Cheap entry to Genting Singapore and Genting Malaysia in certain extent

Being the parent company, Genting will be the main beneficiary of Genting Singapore's rosy prospect. Given that Genting Singapore tradees at 14.6x CY12 PER, Genting is a cheaper entry into the flourish casino market in Singapore.

Likewise, Genting is also trading at discount to Genting Malaysia following the recent sell-down in the over market. Earning of Genting Malaysia is set to grow higher from the existing flattish domestic centric-base earnings when the new racino opens in New York in the fourth quarter of 2011.

Valuation

Price target of RM12.68 per share. Our sum-of-the-part' (SOP) model values Genting at RM14.09. This comes from the break-up value for its various businesses, based on individual subsidiaries/divisions plus management fees from Genting Malaysia on Resorts World Genting.

The break-up values for Genting Malaysia and Genting Plantations are based on our target prices for both companies while valuation basic for Genting Singapore and Landmarks is based on the market value as they are not under coverage at the moment.

Hence, our price target for Genting is RM12.68 after a 10% holding company discount to its SOP valuation.