PETALING JAYA: Genting Malaysia Bhd’s (GenM) recent disposal of 1.43 million shares or 16.9% stake in Genting Hong Kong (GHK) to Golden Hope Ltd (GHL) for US$415mil (about RM1.7bil) cash, received rather lukewarm response from research houses, although they deemed it fair to shareholders.
GHL is a trustee of Golden Hope Unit Trust, whereby GenM chairman Tan Sri Lim Kok Thay and his family members were beneficiaries.
UOBKayHian, in keeping a “buy” call on GenM with sum-of-the-parts target price of RM5.10, said the deal was positive to GenM as GHK continued to be a long-drawn out investment.
It noted that GHK’s expansion will mean that the company will not be providing dividends to GenM in the near-to-mid-term.
“Although the selling price is at a deep discount to GHK’s book value of US$0.57 per share, we are positive on the divestment.
“GHK is unlikely to provide a dividend yield nor an enhancement, at least in the near-to-mid-term due to its aggressive expansion into greenfield projects, including cruise fleet,” said UOBKayHian in a report.
There was an uncertainty on the timing in which GHK achieved longer term returns and since it didn’t declare dividends this year, it noted.
Although GenM’s original investment cost in GHK was US$604.1mil (US$0.42/share), it is expected to gain from the disposal, as it represented a 8.2% premium against GHK’s five-day volume weighted average market price (VWAMP) up to and as at Sept 29, 2016.
The disposal is slated for completion on Oct 21.
“GenM is unlikely to dispose its GHK stake if it was to an unrelated party.
“GHK’s share price was hovering in the range of US$0.265 to US$0.275 since Aug 1, after the company issued a loss-making warning,” UOBKayHian said.
He added that it expects GHK’s losses to widen in the near term and expenses to recur due to launch of new ships till 2020.
CIMB Research maintained an “add” call and made no change to the revalued net asset value-based target price, estimating GenM to record a one-off gain of RM1.32bil in net profit for financial year 2016.
“The disposal price is fair to shareholders since it is an 8% premium to the previous five-day VWAMP of US$0.268 and it is not less the minimum price set by the disposal mandate approved by shareholders on June 1,” said CIMB.
The research house added that GenM had engaged placement agents for the corporate exercise.
It thinks that the RM1.7bil in proceeds will be used to fund the capital expenditure for the Genting Integrated Transformation Plan (GITP).
Public Investment Bank kept a “neutral” rating on the stock, as core earnings growth was only expected to be stronger in FY17/18 forecast with the opening of the first phase of GITP.
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