By Xavier Kong
Analysts were disappointed by Genting Bhd’s third quarter of financial year (3Q15) results, noting that the group’s gains in currency translation could not completely offset the weakness in performance from its Singaporean and UK subsidiaries.
TA Securities downgraded Genting to a “hold” call, citing the challenging operating environment in Singapore and the UK as the reason for the change in rating, as well as the research house’s disappointment in the group’s results. TA also lowered its target price for Genting to RM8.23 from a previous RM9.62.
PublicInvest Research and UOB Kay Hian (UOBKH) both maintained their respective “outperform” and “buy” calls on Genting. Both research houses also raised their target prices for Genting to RM9.22 and RM10.58 from RM9 and RM10.50 respectively.
Both research houses remained positive on the note that Genting remains a resilient stock, considering the bulk of its casino revenue comes from the mass market gaming division.
At the same time, the stock has also recovered from its multi-year low of RM6.60 in August 2015, but still keeping Genting as one of the cheapest among major global casino operators.
However, both research houses had also expressed concerns that the UK segment will be a continued weight on the group, due to slowing business volume from the international market. At the same time, the group’s Singaporean division is expected to make further bad debt provisioning in the coming quarters, which would dampen the effect of a strong Singapore dollar against the ringgit.
AllianceDBS maintained its “hold” call on Genting, also keeping its target price of RM7.25 on the group.
“We retain our holding company discount of 20% as we believe that the current investing market environment does not favour asset reflation plays and the earnings uncertainties of Genting Singapore could continue to cap the stock price,” said AllianceDBS, noting that the Genting Integrated Tourism Plan remains on track, with the Sky Avenue and Sky Plaza shopping malls and new cable car station to be launched by 2016, and the 20th Century Fox World theme Park to be launched between the end of 2016 and early 2017.
However, AllianceDBS cautioned that the risk of slower Chinese economic growth, as well as the anti-corruption drive by the Chinese government, has led to a slowdown in VIP numbers. Should this continue, Genting may see further pressure.
Another matter of note for TA was that, according to management, there is still no firm capital commitment to the group’s Las Vegas project, as costs are still under evaluation. However, management expects construction works to begin in the first half of 2016, and the resort to open business in phases from 2018 onwards.
On the other hand, UOBKH noted that the capital expenditure for the group’s Las Vegas project will be finalised by 2Q16.
In Genting’s other segments, PublicInvest expects Genting Plantations to deliver stronger profits in 2016, underpinned by higher crude palm oil prices.
As at 3.30pm, Genting’s shares were last traded at RM7.35, up 5 sen.
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