Genting: Too big to ignore

Too big to ignore:
Following the opening of Resorts World at Sentosa (RWS), Genting Bhd will become one of the largest casino operators in Asia, and will offer investors a unique exposure to the still-fragmented Southeast Asian gaming market. Note that we expect casino earnings to contribute 80% of Genting Bhd’s revenue by FY11, while the overall group’s strong balance sheet position and extensive experience could position Genting to benefit from further liberalization in the region. Moreover, we think Genting Bhd is also the safest proxy to the Genting Group given the Lim family’s direct 43% stake in the company. Hence, interests of minority shareholders are aligned with those of the family.

We raise our PT to M$8.50, from M$6 previously. We roll forward our timeframe to June 2010 and raise our PT to M$8.50 to reflect our new PTs for Genting Singapore (S$1.20, initiated separately), Genting Malaysia (raised to M$3.50 from M$3.20), and Genting Plantations (raised to M$6.70 from M$5.30). Note that we have also revised our FY10E and FY11E earnings upwards by 3% to reflect our new Genting Singapore and Genting Plantations forecasts.

We expect the share price discount to narrow to SOTP: In arriving at M$8.50, we also narrow our SOTP discount to 15% from 20% previously (the discount has narrowed from 48% in mid-March to 24% currently). In the run-up to RWS opening, we believe that a further narrowing should take place as it should put Genting Bhd at the forefront of the Asian gaming market. A re-rating of Genting Singapore should be a key driver for Genting Bhd’s share price as Genting Singapore now makes up 40% of Genting’s RNAV. Key risks are a slower-than-expected recovery in casino markets and prolonged health scares.