Genting Malaysia selloff ‘overdone,’ Affin Hwang says, upgrading stock to Buy

Malaysia ringgit notesMalaysia ringgit notes

Affin Hwang Capital upgraded Genting Malaysia to Buy from Hold, saying the stock’s correction is “overdone” and the company has a “brighter future.”

The stock was flat at 2.91 ringgit at 9:44 A.M. SGT, after tumbling from as high as 4.54 ringgit at the start of November.

That was after Genting Malaysia faced a triple whammy of higher gaming taxes, Fox reportedly pulling out of a theme-park deal and a large impairment loss in third-quarter earnings.

But Affin Hwang said in a note on Monday that excluding one-offs, nine-month core profit after tax and minority interests (PATMI) was within its expectations.

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.

Affin Hwang said management didn’t “provide any color” on the plan for the theme park, but the note said the project wasn’t likely to be a wash.

“We believe that GENM will still work on the outdoor theme park, but the opening date is likely to be delay beyond the planned first half of 2019,” the analyst note said.

It lowered its visitation rate forecast on an assumed 2020 open.

But it added, “In our view, even without a branded theme park, visitation growth is still sustainable, albeit not as strong as previously forecasted.”

Affin Hwang noted that overall visitation for the nine-month period ended 30 September was up 14 percent on-year even without an outdoor theme park.  It added that the “old” theme park, prior to renovation, still attracted around 2 million to 2.5 million visitors a year.

However, it cut its 2019-20 earnings per share forecasts by 31-33 percent, and it lowered its target price to 3.80 ringgit from 4.80 ringgit.

RHB keeps Buy call

RHB also said it was staying positive on the stock, sticking with a Buy call as earnings excluding one-offs were in line with its expectations.

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.

RHB said it didn’t rule out the possibility Genting Malaysia could recover the impairment as management is in talks with the tribe.

It was also relatively sanguine on the theme park concerns.

“While we assume the outdoor theme park will not open in the near term, we think Genting Malaysia’s existing and upcoming facilities under the Genting Integrated Tourism Plan will continue to draw visitors. This, in turn, will contribute to higher gaming volume,” RHB said in a note on Monday.

But after lowering its visitor arrival growth assumption to 5 percent from 20 percent, it lowered its 2019 and 2020 earnings forecasts by 9 percent and 10 percent respectively. it cut its target price to 3.53 ringgit from 4.30 ringgit.

 

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