KUCHING: Genting Malaysia Bhd’s (Genting Malaysia) first half of 2015 (1H15) results were deemed within expectations as some analysts are expecting a stronger 2H for the group.
Genting Malaysia noted in its results for the second quarter ended June 30, 2015 press release on Bursa Malaysia, the group’s 1H15 profit before tax decreased by five per cent to RM746.4 million.
According to AllianceDBS Research Sdn Bhd (AllianceDBS Research), Genting Malaysia’s 1H15 core earnings of RM626 million accounted for 47-45 per cent of the research house’s and consensus’ full year estimates, respectively.
Nonetheless, AllianceDBS Research deemed the results to be within expectations as the research house expected a stronger 2H after the impact of the goods and services tax (GST) on domestic consumer spending tapers off.
“We also expect the weak currency to attract more tourist visitations and encourage more local travelling among Malaysians, which could benefit Genting Malaysia,” it said.
Meanwhile, Genting Malaysia’s 1H15 core profit of RM624 million accounted for 40 per cent of the research arm of TA Securities Holdings Bhd’s (TA Research) full-year projections and 45 per cent of consensus forecast.
However, TA Research also considered the results within expectations as 2H15 earnings are expected to be stronger due to additional rooms in Resorts World Genting Highlands, the opening of Resorts World Birmingham in next couple of months and weakening of ringgit against US dollar, which bodes well for Genting Malaysia’s US operations.
On the outlook for Genting Malaysia, AllianceDBS Research noted that Genting Integrated Tourism Plan (GITP) remains on track.
The research house further noted that the group is expected to launch Sky Avenue and Sky Plaza shopping malls, and new cable car station by 2016 and Twentieth Century Fox World theme park by end 2016/early 2017.
“We wish to highlight that the group has obtained regulatory approvals to set up a new casino at Sky Plaza, although management disclosed minimal information on the additional gaming capacity obtained,” it added.
AllianceDBS Research did not foresee any near term re-rating catayst for the group at this juncture.
With Budget 2016 set to be tabled in parliament on October 23, the research house believed that rising concerns on the potential gaming tax hike could cap any share price upside in the near term.
In the backdrop of weak Ringgit against regional currencies, TA Research expected visitation to Genting Highlands to continue growing in 2H15 and 2016. # The research arm noted that under the GITP development plan, Genting Malaysia has spent RM740 million mostly on hotel development.
“Recently, the company has issued RM2.4 billion medium term notes to finance the development.
“These notes will carry coupon rates of 4.5-4.9 per cent per annum,” it said.
It further noted that as far as the weakening ringgit is concerned, the company has positive net assets in foreign subsidiaries, which will contribute positively to the group’s earnings in ringgit term.
TA Research has made no change to its financial year 2015-2017 (FY15-17) earnings projections.
TA Research maintained its discounted cash flow (DCF) valuation to RM4.30 per share based on a discount rate of 9.2 per cent.
At RM4.30, the implied price earnings (PE) of 16.6-fold is one-fold PE multiple higher than the group’s peers in Macau, which the research arm thought was justifiable as Genting Malaysia’s earnings was less prone to China slowdown.
Given the recent weakness in share price, TA Research upgraded Genting Malaysia to ‘hold’ from ‘sell’ previously with expected total return of 12.1 per cent.
On the other hand, AllianceDBS Research maintained its ‘hold’ call for Genting Malaysia with a target price of RM4.10 per share based on sum of parts (SOP) valuation.
“There is no visible re-rating catalyst for the stock in the near term,” the research house said.