CHOO SWEE KEE
TA Investment Management Bhd Stock pick: Genting Malaysia Bhd
GENTING Malaysia Bhd (GenM) embarked on its RM10.4bil Genting Integrated Tourism Plan (GITP) two years ago, which will see the hilltop location getting a facelift with a new 20th Century Fox theme park, refurbished hotel rooms, a new 250-suite premium hotel, a shopping centre (Sky Avenue) and a high-speed cable car system. Previously, many had regarded GenM’s assets as being on the matured side, with a jaded theme park and rather old hotel rooms. TA Investment, however, opines that GenM deserves a relook in 2017 after being out of favour with investors, as the GITP should provide it with a major rerating catalyst.
The outlook should get more interesting as the new attractions come onstream, starting with the new cable car system and the Genting Premium Outlet by the first quarter of 2017.
TA Investment’s positivity on the stock is premised on several catalysts. Firstly, the GITP will add gaming capacity, which, in turn, will translate into higher core gaming revenue.
The new non-gaming attractions will also attract more patrons to Genting Highlands, which, in turn, will increase the average spend per person.
Additionally, GenM is also catching the attention of Chinese tourists, as they seek to avoid visitations to Macau in view of the anti-corruption clampdown. Visitors from China rose 49% year-on-year (y-o-y) in the first nine months of 2016.
The Government has also made it easier for Chinese tourists to visit Malaysia by issuing e-visas within 24 hours for stays of up to 30 days.
Lastly, the weak ringgit should also help with visitor numbers, as it is affordable to the average tourist. This is evidenced by the rise in foreign arrivals by 7% y-o-y in the first nine months of 2016.
GenM aims to improve the number of visitors from 19 million in 2015 to 30 million by 2020 and this is possible with the GITP.
We expect these factors to drive earnings growth and GenM to have a good year.
Head of research, Affin Hwang CapitalStock pick: Genting Malaysia Bhd
THERE is a structural growth story in Genting Malaysia Bhd (GenM), thanks in particular to its Genting Integrated Tourism Plan (GITP).
GenM is one of the few companies in the country with expanding capacity, which basically will be generating growth in 2017-2018.
This translates into a strong upside potential for GenM shares, .
The house’s target price for GenM is RM5.60, which represents an upside of about 20% from its closing price at end-2016.
The counter is expected to offer dividend yields of around 2% for the next two years.
The first phase of the GITP is scheduled for opening throughout 2017, with the main attraction – the 20th Century Fox theme park – slated for operation by the end of 2017.
Once the GITP is completed, it will reinvent Genting Highlands as a competitive integrated resort regionally, which will not only help retain local visitors but also attract regional visitors.
The house expectation is that GenM’s foreign ventures, namely, in the United Kingdom and the United States, are also turning around, as the company’s management has taken steps to address the recent volatilities in its operations in these countries.
The UK operation has shifted focus from high-roller VIPs to premium-mass players who don’t require credit facilities, while the US operation has also acquired the rights to install 1,000 more slot machines on better commercial terms.
Head of research for UOB Kay HianStock pick: Ekovest Bhd
EKOVEST Bhd is a deeply undervalued contractor, concessionaire and property developer.
Its key highlight for the year was the disposal of a 40% equity stake in Konsortium Lebuhraya Utara-Timur (KL) Sdn Bhd, the holding company of the highly coveted Duta-Ulu Kelang Expressway (Duke one and two) to the Employees Provident Fund (EPF) for RM1.13bil.
The price tag paid by the EPF implicitly values 100% of Duke one and two at RM2.82bil, significantly above Ekovest’s market capitalisation of RM2bil.
The sale is expected to be completed by the first quarter of 2017, and would see shareholders being rewarded with a bumper 25 sen a share in special dividends, implying a 11% yield.
In addition, the group’s construction division is also armed with an all-time high outstanding order book of RM4.7bil (implying a superior order book cover of 7.6 times compared to its financial year 2016 construction revenue).
A bulk of the order book is from its third highway concession, the 50km Setiawangsa-Pantai Expressway, which is expected to be open to traffic in 2020.
Earnings-wise, we expect the company to deliver a conservative three-year earnings compounded average growth rate of 69%, driven by its construction and property division, as well as narrowing losses for Duke one and two.
The stock is trading at an undemanding FY18 price-earnings ratio valuation of 12.4 times, 30%-40% below the trading range of larger construction companies.
Currently, we have a “buy” recommendation with a target price of RM3.13 based on a 40% discount to its RM5.22 sum-of-the-parts value per share.
Senior analyst, UOB Kay HianStock pick: SYF Resources Bhd
WHOLLY INTEGRATED furniture manufacturer SYF Resources Bhd is set to embark on an accelerated phase of growth over the next three years with its aggressive expansion of three new engineered board plants, lifting its annual production capacity from 80,000 cubic metres to 380,000 cubic metres by mid-2019.
The group’s expansion plans have been progressing according to schedule, with operations at its second plant having commenced on Dec 16 and slated to be ramped up to its optimal utilisation rate of more than 80% by early-March 2017.
On a separate note, we believe that the recent acquisition of a controlling 56.7% stake in Mieco Chipboard Bhd , Malaysia’s largest particle board manufacturer with an annual production capacity of 900,000 cubic metres, by SYF’s major shareholder, Ng Ah Chai, could entail a potential amalgamation of Mieco’s board division into SYF (or vice-versa). This may result in the largest particle board-manufacturing entity in Malaysia.
On the property front, while its current unbilled sales of RM200mil and upcoming launches with a collective gross development value (GDV) of RM195mil for the remaining phases of its Lavender Residence developments will only sustain property earnings for the next one to two years, our channel checks reveal that the group is close to finalising terms for new joint-venture developments with a combined GDV of more than RM1bil, translating to a bottom-line contribution of RM128mil over the five-year development period.
All in all, we expect SYF to deliver a stellar 40% year-on-year bottom-line growth in financial year 2017 (FY17) and a stellar three-year earnings compounded annual growth rate of 38% on the back of the tripling of its engineered wood-production capacity, and a gradual step-up in property contribution arising from more than RM500mil in launches over the next three years. The stock also offers a decent prospective FY17 to FY18 yield of 4%-5% at an attractive valuation of 5.5 times its 2017 price earnings ratio.
THOMAS PT YONG
CEO of Fortress Capital Asset Management (M) Sdn BhdStock pick: Genting Bhd
GENTING’S 52.9% effective stake in Genting Singapore has experienced improving fundamentals, which has led to a recovery in Genting Singapore’s share price. This improvement could be attributed to lower impairments of receivables and the effectiveness of its recent cost-cutting measures. Coupled with its tightening credit policy, there will be lower impairment risk, going forward. Recent initiatives to attract more premium-mass players should also compensate for the decline in the VIP segment.
Genting’s 49.3% effective stake in Genting Malaysia should be a good proxy to tourism play in Malaysia with the contribution from the Genting Integrated Tourism Plan (GITP), which will see the launching of the Sky Avenue and Sky Plaza shopping malls by this month and the 20th Century Fox World outdoor theme park by end-2017. In addition, the GITP makeover will come with 300 new gaming tables in Sky Plaza, a 55% increase from 550 gaming tables currently. Overseas operations, which include the casinos in the United States and the United Kingdom, are also showing signs of improvement in operations.
Earnings for Genting’s 52.9%-owned Genting Plantations should also improve in financial year 2017 in view of better fresh fruit bunch and crude palm oil (CPO) production, as the effect of the El Nino subsides. The output growth is also supported by the maturing of its oil-palm estates and a higher oil-extraction rate. The current CPO price of RM3,100 has exceeded most analysts’ expectations of RM2,600 to RM2,800 per tonne. The sum-of-parts value computed on a per-share basis for Genting is RM11 and the share price is now trading at a 30% discount, which is one standard deviation above its 10-year historical average discount. A narrowing of the holding discount will provide an attractive upside potential.
Other catalysts include Genting Singapore winning the bid for the integrated casino resort development in Japan.