Genting rated a ‘buy’, Malakoff 'outperform'

Genting Bhd

By UOB Kay Hian Research

Buy

Target price: RM10.90

LAST Friday, Genting Bhd’s share price closed at RM8.25, representing a 19% drop from its one-year high of RM10.22.

Genting’s share price notably fell 3.2% last week, ignoring the technical rebound of Macau gaming stocks.

Its warrants, issued on December 13, closed last Friday at RM1.43, below its issue price of RM1.50 (exercise price: RM7.96) and one-year high of RM2.98.

“Current valuations are compelling, and we continue to expect a series of moderate positives to re-rate the stock, including modest special dividends in this year’s 50th anniversary celebration, the opening of an iconic 20th century theme park by 49.3%-owned Genting Malaysia in the fourth quarter of 2016,” it said.

UOB Kay Hian Research said Genting’s present valuation did not ascribe any option value to the eventual opening of Genting Las Vegas or casino liberalisation in Japan,” the research house said.

There was the possibility that Japanese lawmakers could pass the casino legalisation bill in 2015 and 52.6% subsidiary Genting Singapore was regarded as a key contender for a casino concession, it added.

Genting traded at a prospective 2015 enterprise value/earnings before interest, tax (EV/EBITDA), depreciation and amortisation of 7.4x at the low end of its 7-24 EV/EBITDA range at a 9.4 average.

This was since 2011, the opening world of Resorts World Sentosa.

“We maintain our sum of the parts-based target price of RM10.90, which implies a 9.0x 2015 forecast EV/EBITDA,” UOB Kay Hian Research said.

Malakoff Corp Bhd

By Kenanga Research

Outperform

Malakoff has a total effective installed capacity of 6,036MW, making it the largest independent power producer (IPP) in South-East Asia, and it is aiming to achieve 10,000MW by 2020, said Kenanga Research.

After two years of hiccups due to unplanned outages, the research house said earnings were set to normalise this year and expected to scale a record high in FY16 (financial year ending Dec 31, 2016) at RM603.4mil, which implied an inexpensive price to earnings ratio (PER) of 15.5 times.

However, it said earnings were seen easing in FY17 and set a new base from there as the Port Dickson Power Bhd’s power purchase agreement (PPA) expired.

Nonetheless, it added this was not a concern if it was able to secure new PPA as planned.

Among the three main IPPs, the research house said Malakoff had the longest remaining PPA life as three-quarters of its total effectively installed capacity would expire after 2024.

“The percentage-mix should increase further once the new 1,000MW Tanjung Bin Energy comes into the system.

“On the other hand, the country’s first IPP, YTL Power International Bhd will completely exit the local IPP market if it fails to secure any new IPPs once the 1,212MW PPA for Pasir Gudang and Paka expire later this year and early next year, respectively,” it added.

Kenanga Research said Malakoff had also invested in several water production and power generation projects overseas through joint ventures and consortiums.

It said the company had different levels of equity interests in Shuaibah Phase 3 Expansion IWP (independent water project) and the Shuaibah Phase 3 IWPP (independent water and power project) in Saudi Arabia, Hidd IWPP in Bahrain and Souk Tleta IWP in Algeria.

“In 2013, Malakoff expanded its footprint in Oman by forming MCDC (with a 45% equity interest) to undertake the design, ownership, financing and operation and maintenance business of the Al Ghubrah IWP.

“Under the current challenging market when everyone is searching for quality reasonably priced stocks, the re-listing of Malakoff is timely, which offers solid earnings visibility, reasonable share pricing and decent dividend yields of 3% to 4% based on 70% payout,” it added.

Kenanga Research said key risks to its recommendation were a major unplanned outage, like the case in Tanjung Bin Power Plant, and if Tanjung Bin Energy failed to take off or incurred cost overrun.