Genting gets lucky again
There is growing optimism on the group’s prospects as market conditions improve
THE founding family feud aside, luck is clearly on Genting Bhd’s side.
The diversified conglomerate, whose business covers casinos; leisure and entertainment; plantation; power; as well as oil and gas, is seeing improving prospects across most of its divisions, especially gaming, thanks to increasingly positive market conditions.
Such expectation has already compelled many analysts to place their bets on Genting’s shares as one of the counters on Bursa Malaysia that will perform well this year. The counter also stands as one of the favourite picks among local fund managers.
A check on Bloomberg poll of analysts shows there are 15 “buy” recommendations on Genting’s shares, two “hold” and only one “sell”.
At its current levels, most see the counter trading at relatively inexpensive valuations, hence offer investors an attractive buying opportunity.
Genting’s shares ended 7 sen lower yesterday at RM9.41.
That represents a valuation of 16 times the consensus estimated earnings for its financial year (FY) ending Dec 31, 2017, and about 13 times the estimated earnings for FY18.
This compares with the average 12-month target price that analysts have ascribed to Genting’s shares at RM11.36, which represents a conservative valuation of about 19 times and 17 times consensus estimated earnings for FY17 and FY18, respectively.
Buying opportunity
Genting shares have been under selling pressure from foreign shareholders since late last month, falling to an eight-month low of RM8.87 early of the week before rebounding to its current level on reports of solid earnings by its 53%-owned Genting Singapore plc (GenS).
Among the foreign shareholders that have pared down their interests in Genting are Massachusetts Mutual Life Insurance Co, Oppenheimer Acquisition Corp and MM Asset Management Holding LLC, all of which have since ceased to be substantial shareholder in Genting.
Nevertheless, the selldown by foreigners – which resulted in the current weakness of Genting share price – gives investors a good buying opportunity, says TA Research.
“Genting shares have been under selling pressure from foreign shareholders recently, which we believe could be due to flight to safety before the General Election in Malaysia.
“However, we see this as a good opportunity to accumulate, as the group is likely to benefit from the surge in gaming volume in both Malaysia and Singapore,” the brokerage explains in its recent note.
Gaming business volume in the region has been on a rebound for the past one year, as reflected in the recent financial results of GenS.
Following the first two quarters of strong growth, GenS scored another solid win, with a 35% yearon-year increase in profits to S$143.8mil (RM443.5mil) for the third quarter of FY17, driven by strong recovery in its VIP segment. Its revenue rose 8% to S$629.9mil compared with S$581.5mil a year ago.
On strong showing by GenS, which contributes about 45% to Genting’s bottom line, the holding company is also expected to report solid growth for its third-quarter FY17 results, which will be unveiled later this month.
According to some analysts, Genting is favoured as a cheaper alternative for investors for exposure to the upside of the conglomerate’s subsidiaries such as GenS, as well as Genting Malaysia Bhd (GenM), in which it owns a 49.37% stake and Genting Plantations Bhd, where it has a 50.7% stake.
For instance, Hong Leong Investment Bank Research points out that Genting represents a “cheaper proxy” to buy into the expected growth of GenM’s GITP (Genting Integrated Tourism Plan) project and the excitement surrounding GenS’ bid for a casino licence in Japan.
Family feud
Meanwhile, Genting chairman and chief executive Tan Sri Lim Kok Thay and his eldest son Lim Keong Hui have recently solidified their control over the multimillion-ringgit business empire amid an ongoing legal dispute with other members in the Lim family.
It is unclear whether the latest development will complicate the legal action that has been initiated against Kok Thay and his younger brother, Datuk Lim Chee Wah, by the children of their late brother, Datuk Lim Tee Keong, since last year.
But what’s clear is, the feud is not expected to affect the business operations or prospects of the Genting group in any way.
If anything, Kok Thay’s solidifying of his control over Genting group is good for investor sentiment, as one fund manager puts it.
Over the week, Kok Thay asserted that he is the major shareholder of Genting, with direct and indirect stakes totalling 44.38%.
According to filings with Bursa Malaysia, Genting said Kok Thay has “reasonable grounds” to believe that he and Keong Hui have deemed interest in Genting shares and warrants held by Kien Huat Realty Sdn Bhd, Inverway Sdn Bhd and Golden Hope Ltd based on a legal opinion and upon review of certain rulings in the Companies Act 2016.
The deemed interest encompasses an equity stake of 42.62%, or 1.63 billion shares, and 407.6 million warrants in Genting.
The announcement followed a recent report inferring that Kok Thay may not be a substantial shareholder of the Genting group, citing the company’s 2016 annual report, where Kok Thay was not listed as a substantial shareholder.
As published in the company’s annual report, Kok Thay personally already has direct interests in Genting, comprising an equity stake of 1.78% and 17.03 million warrants, while Keong Hui, who is Genting executive director (chairman’s office) and chief information officer, does not hold any direct shares or warrants in the company.
With a controlling stake in Genting, Kok Thay has also effectively become the controlling shareholder of other Genting sub- sidiaries.
His rank in the Forbes’s list of Malaysia’s richest is also expected to rise, given the increase in his net worth based on his stakes in the companies that he would directly and indirectly own through the increase in his shareholding in the companies that control the Genting empire.
Kok Thay is currently ranked the 6th richest man in Malaysia by Forbes.
The tycoon and his brother, Chee Wah, is currently embroiled in a legal dispute with their late eldest brother Tee Keong’s children – Joey Lim Keong Yew, Benjamin Lim Keong Hoe and Marie Lim Seok Leng.
Tee Keong was the eldest son of Genting patriarch and founder, Tan Sri Lim Goh Tong, while Kok Thay and Chee Wah are the second and youngest sons.
According to reports, two matters are being contested. The first is the will of Tee Keong, who passed away a bankrupt on April 14, 2014.
The second is the removal of Benjamin and Marie as beneficiaries of the Tee Keong Family Trust, a discretionary trust set up by the late Goh Tong in 1990 for his son and his family. Goh Tong also set up six other trusts, including one called the Lim Kok Thay Trust and Puan Sri Lim (Goh Tong’s wife) Trust.
While expressing puzzlement over Kok Thay and Keong Hui’s securing control of Genting, Joey told a business daily that he was not yet sure whether he would contest the matter in court due to the lack of information at that juncture.
Kien Huat Realty Sdn Bhd is the major shareholder of Genting with 39.44% direct equity interest, while Parkview Management Sdn Bhd, as trustee, holds 39.68%.
Parkview Management, as trustee of a discretionary trust, owns 100% of the voting shares of Kien Huat International Ltd, which in turn owns 100% of the voting shares of Kien Huat Realty.
Inverway, meanwhile, is a wholly-owned subsidiary of Kien Huat Realty.
Parkview Management, as trustee of the discretionary trust, is deemed interested in the Genting shares held by Kien Huat Realty and Inverway by virtue of its controlling interest in both the companies. Kok Thay is the beneficiary of the discretionary trust.
Meanwhile, Golden Hope Ltd, as trustee of the Golden Hope Unit Trust, is a private unit trust whose voting units are ultimately owned by First Names Trust Co (Isle of Man) Ltd as trustee of a discretionary trust. Lim is also a beneficiary of such discretionary trust.