PETALING JAYA: The improvement in ties between Malaysia and China would be a boon for Genting Malaysia Bhd, according to RHB Research.
The research house pointed out that there could be potential relaxation of visa requirements that would boost visitor arrivals to Resorts World Genting (RWG).
“The potential relaxation of visa requirements should lead to huge influx of Chinese tourists, known to be among the biggest spenders.
“The tourism dollar is a key focus of the government and ties in well with Visit Malaysia 2020,” it said in a report.
Last year, Malaysia welcomed three million tourists from China, of which only 38% visited RWG.
In addition, the brokerage said the reinstatement of mega projects with China-based contractors would increase Chinese nationals in Malaysia.
“We expect a re-rating of the stock upon realising milder-than-expected tax impact with potential booster from the influx of Chinese tourists,” RHB Research said.
Shares in Genting Malaysia has been steadily gaining momentum, increasing more than 8.5% since beginning of the year to close at RM3.20 a share yesterday.
It is worth noting that shares in Genting Malaysia was heavily hit since last September, falling more than 45% to as low as RM2.72 a piece on Dec 14, 2018.
It started with the tabling of Budget 2019, where casino duties were revised upward to 35%, which is a 10% increase, effective Jan 1.
A month after the budget was tabled, Walt Disney and 21st Century Fox decided to abandon the contract to build the first Fox-branded theme park in Genting Highlands on the grounds of default.
The new theme park, based on the 20th Century Fox World design, was supposed to boost the number of visitors to the Genting Highlands resort for the next two years from June 2019.
At the current share price, RHB highlighted that Genting Malaysia is trading at price-earnings ratio of 12.9 times compared to peers comparison at 18.4 times.
“All the negatives are more than priced in, with several potential upside risks. Foreign shareholding remains at an all-time low of about 31%, and dividend yield is decent about 5%,” it said.
For the financial year ended Dec 31, 2018 (FY18), Genting Malaysia slipped into the red with a RM19.6mil loss compared to a net profit of RM1.16bil a year earlier.
During the year, Genting Malaysia recorded an impairment loss of RM1.83bil relating to the group’s total investment (including accrued interest) in the promissory notes issued by the Mashpee Wampanoag tribe.
RHB Research reckoned that the upcoming first-quarter result announcement by Genting Malaysia should clear the cloud and boost the overall sentiment in the stock.
Among the catalysts include the warming relationship between China and Malaysia, undemanding valuation and re-rating on the stock.
“The street is over-pessimistic while all negatives are more than reflected in the share price.
“We opine the upcoming better-than-expected results should dispel uncertainty on the impact of the tax hike, and boost sentiment on the stock,” RHB Research said.
It said according to channel checks, Genting Malaysia’s gaming volume and visitors have surged in the first quarter of this year.
“They are expected to drive topline growth and cushion its margin, on top of cost-saving initiatives. Hence, we may not see a contraction for RWG first-quarter 2019 earnings before interest, tax, depreciation and amortisation in absolute terms, contrary to the street’s expectation,” RHB said.
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