Genting Bhd - Hurt by GenS BUY

- Reiterate BUY on Genting Bhd with a lower RNAV-based fair value of RM10.10/share. The downward revision in the fair value accounts for revised fair values for Genting Singapore PLC (GenS) and Genting Plantations (GenP). 

- We believe that the fall in Genting Bhd’s share price has reflected GenS’ uncertain outlook. Our fair value includes a 15% discount to Genting Bhd’s RNAV.  

- Genting Bhd’s 9MFY12 core earnings were below our expectations and consensus estimates due to GenS’ poor results. Recall that GenS’ 3QFY12 results were affected by a fall in the volume of VIP business.   

- Included in Genting Bhd’s earnings were impairment charges recognised by Genting Malaysia (GenM) and GenS. 

- Apart from these, Genting Bhd also recognised an impairment charge pertaining to an investment in associate. 

- We believe this to be Landmarks Bhd. We estimate Genting Bhd’s acquisition cost of Landmarks at RM2.05/share versus the current share price of RM0.985/share. 

- Although GenS is flushed with cash, Genting Bhd does not interfere with its subsidiary’s capex or dividend plans.

- Genting Bhd’s policy is to let its subsidiaries make its own dividend and expansion decisions. As at end-September 2012, GenS had gross cash of S$4.2bil.  

- Genting Group has capex commitments of RM5.7bil as at end-September 2012. Most of these capex would be incurred over a two- to five-year period. 

- The bulk of the capex is in respect of Genting Bhd’s plan to build a coal-fired power plant in West Java, Indonesia. This would cost about RM3.2bil. The power plant would command a capacity of 660MW upon completion. 

- The capex also includes GenM’s extension of First World Hotel, which would cost roughly RM300mil. This would increase the number of rooms at the hotel by 700 to 6,818.

Source: AmeSecurities