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Categories
| OSK: Resorts ripe for picking |
| Business & Market 2009 | |||
| Written by Financial Daily | |||
| Tuesday, 26 May 2009 10:52 | |||
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In a research report yesterday, OSK said given Genting’s strong rally in its share price performance to an estimated 15% discount to its revised net asset value (RNAV), it believed Resorts should eventually trade at a lower RNAV discount as the market began to realise that Resorts would continue to be the preferred vehicle for earnings accretive mergers and acquisitions (M&As). “Future fund-raising exercise to grow Genting’s potential new venture would be more efficiently undertaken under Resorts, given the latter’s robust and stable cash flow generating domestic grind casino market. “Anyhow, our investment proposition for Resorts is well supported by its still robust and stable domestic core operation and potential special dividends if Genting were indeed the preferred expansion vehicle,” OSK noted. The research house added that the current economic environment presented an excellent opportunity for M&As while the  window of opportunity might be fast-closing as asset prices continued to recover from trough levels.“Although it is too premature to speculate on such an outcome considering the intricacies of the licensing agreement, we believe that given Genting Group’s strong appetite for large-scale casino investments in Macau, this could certainly pave the way for the group’s long awaited entry into Macau’s gaming market in a meaningful way,” OSK said. Speculations were rife on MGM Mirage Ltd’s (MGM) possible sale of a 50% stake in MGM Grand Macau held under MGM Grand Paradise (50:50 joint venture between MGM and Pansy Ho), and the Genting Group might be one of the parties eyeing the stake.  OSK said Resorts’ inclusion in the new unified Kuala Lumpur Stock Exchange board was an added catalyst for funds wanting to increase their weightage in the stock for benchmarking purposes. “Our new target price of RM3.25 indicates an implied FY09 PER (financial year ending Dec 31, 2009 price-earnings ratio) of 14.6 times, which is well within the mean historical PER trading band of 11 times to 23 times. “On a separate note, we have also upgraded our SOP TP (sum-of-parts target price) for Genting to RM4.85 from RM4.42 after factoring in our higher valuation for Resorts into Genting’s SOP value,” it said. OSK said Resorts had always traded at a 10% to 20% valuation premium to Genting as it was the group’s main earnings and cash generative outfit. However, given Resorts’ recent related party transaction and management’s lack of clear guidance on the group’s future use of its growing cash hoard, the market has begun to price in a larger risk premium on the cash, it said. “As market risk premium declines, we believe that the market will eventually price in a lower risk on the potential of another related party transaction, at least over the immediate term,” it said. Resorts surged 21 sen to close at RM2.79 yesterday. This article appeared in The Edge Financial Daily, May 26, 2009.
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