KUALA LUMPUR: Genting Bhd is poised to play catch-up as an FBM KLCI laggard on the back of improving tourist arrivals to Malaysia and Singapore, according to CGS International Securities Malaysia (CGS Malaysia).
"In our view, Genting remains a credible proxy for the recovery in tourist arrivals into Malaysia and Singapore, as 37 per cent and 41 per cent of its financial year 2024 (FY24) earnings before interest, tax, depreciation, and amortisation (EBITDA) are from Genting Malaysia (GENM) and Genting Singapore (GENS), respectively.
"To illustrate the undervaluation of Genting, its 53 per cent stake in GENS is currently valued at 9 per cent above its current market value," the firm said in a note.
CGS Malaysia expects Genting's local operations to post quarter-over-quarter (qoq) and year-on-year (yoy) improvements in the first quarter of 2024 (1Q24) revenue and EBITDA.
This is following the tourism data indicating that total tourist arrivals in Malaysia in 1Q24 rose 35 per cent yoy and 2 per cent qoq to 5.8 million.
"We believe increased tourist arrivals would have helped drive business volumes at its gaming and non-gaming operations in Resorts World Genting (RWG), likely contributing to GENM's revenue growth in 1Q24," it added.
CGS Malaysia maintained its 'add' call on Genting with a higher target price of RM7.20 from RM6.95 previously.
It has also raised the earnings per share (EPS) for FY24 and FY25 by 14.9 per cent and 31 per cent, respectively, to factor in the higher adjusted EBITDA forecast for GENS and GENP, as well as some housekeeping measures.
According to the firm, GENS's 1Q24 adjusted EBITDA of S$369.5 million (92.7 per cent yoy) was driven by strong revenue growth in both its gaming (69.5 per cent yoy) and non-gaming segments (44.2 per cent yoy).
"However, this is expected to normalise in the second quarter of 2024 (2Q24), as the increased visitors and tourism spending likely peaked in 1Q24.
"Singapore saw an increase in international visitor arrivals (IVAs) by 49.6 per cent yoy in 1Q24, with year-to-date IVAs recovering to 92.9 per cent of 2019 levels. We believe IVAs are likely to experience robust yoy growth of about 20 per cent in 2Q24," it said.
CGS Malaysia added that the key catalyst for Genting will be its Alzheimer's disease oral drug TauRx receiving FDA approval.
It said the 24-month data in March 2024 looked promising, with sustained benefits across the disease spectrum from early to moderate dementia and significantly reduced disease progression in participants in the Phase 3 LUCIDITY trial.
"While we have not accounted for any value from TauRx in our sum of the parts (SOP) valuation, our back-of-the-envelope calculations suggest this could add another RM0.70 per share based on a potential market of RM536 billion, a 5 per cent market share, and a 10 per cent net margin," it said.