Genting Malaysia shares rise despite swing to 3Q18 net loss; Nomura upgrades to Buy

Malaysia ringgit notesMalaysia ringgit notes

Shares of Genting Malaysia rose on Monday, despite the gaming company reporting a third quarter net loss on Friday, with Nomura upgraded the stock to Buy from Reduce.

The stock was up 1.40 percent at 2.90 ringgit at 12:29 P.M. SGT.

Nomura said the earnings results had both positives and negatives. But with the stock having fallen around 45 percent over three months and Street earnings estimates already cut significanty amid Malaysia’s gaming tax hike and its theme park delay, “most of the negative news is more than priced in,” Nomura said.

Among the negatives was management’s refusal to comment on the status of its legal battle with Fox and Disney, Nomura said in a note on Monday, but it added that this was “not entirely unexpected.”

Genting Malaysia has reportedly sued Walt Disney and Twenty-First Century Fox in the U.S. for more than S$1 billion, alleging the two were walking away from a contract to build a Fox-branded theme park in Malaysia. Genting has said that so far, it has invested more than US$750 million in the project. Disney has reportedly said there is no merit to the suit.

Nomura also pointed to the headline net loss, but it pointed to the Mashpee impairment as a positive.

For the third quarter ended 30 September, Genting Malaysia reported on Friday a net loss of 1.27 billion ringgit on revenue of 2.60 billion ringgit, while for the nine-month period, it reported a net loss of 404.4 million ringgit on revenue of 7.42 billion ringgit.

Genting Malaysia posted an impairment loss of 1.83 billion ringgit on its total investment, including accrued interest, in the promissory notes issued by the Mashpee Wampanoag Tribe. That was due to uncertainty over whether it could recover its investment after the U.S. federal government said the tribe didn’t meet conditions under the Indian Reorganisation Act to allow it to have land in trust for an integrated gaming resort development, the company said.

“We are pleased that management decided to prudently impair the Mashpee notes to clear a longstanding overhang,” Nomura said.

It estimated that excluding one-offs, net income for the third quarter was 395 million ringgit.

Nomura also noted that the resort earnings ramp-up was better than it had expected. In the third quarter, the Malaysian leisure and hospitality business saw revenue rise 26 percent on year to 1.70 billion ringgit, mainly on higher mass-market business after opening new facilities and attractions.

The investment bank increased its Malaysia earnings before interest, tax, depreciation and amortization (EBITDA) forecasts by 8-9 percent each for 2018 and 2019 for the earnings beat, while increasing its net income forecasts by 5 percent and 16 percent respectively.

It increased its target price to 3.40 ringgit from 3.00 ringgit.

“We expect GENM’s next leg of growth to come from its capex in Malaysia, which is a growing cash cow for the company and has boosted visitation and revenues,” Nomura said.

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