KUALA LUPUR: OSK Investment Research is maintaining its Buy on Genting Malaysia (formerly Resorts World) with a target price of RM3.25 (10% discount to realized net asset value of RM3.60).
On Wednesday, its unit Resorts World Ltd, had subscribed to Wynn Las Vegas LLC and Wynn Las Vegas Capital Corp mortgage notes
amounting to US$15 million (RM50.5 million). The notes yield an annual return of 7.9% and mature in 2017. The Notes are secured on substantially all of the existing and future assets of the issuer.
OSK Research said the acquisition represented a minute 1.1% of the group's net cash balance of RM4.6 billion and only 3% of the total subscription offering of US$500 million by Wynn.
"We believe that the market may start questioning the strategic reasons for investments of such small scale despite its potential to generate higher returns than the risk-free 2% that the group currently earns on its cash hoard," it said.
The incremental impact on group earnings from the RM50.5 million investment would amount to approximately RM2.9 million, or less than 0.2% of the group's FY09 earnings.
Given that Resorts remains the key cash flow generating company within the group coupled with its net cash hoard of RM4.5 billion, OSK Research said it continued to believe that it will remain the group's preferred casino M&A vehicle.
In relation to potential acquisition opportunities in Macau, Singapore's strict casino licensing oversight may pose a hindrance to Genting Singapore.
The stock's current undemanding valuations of 5.7 times FY10 enterprise value/ earnings before interest, taxation, depreciation and amortisation (EV/EBITDA) versus its historical average of 7 times and the regional peer average of 7 times to 10 times, indicates that the potential competitive risk emanating from the Singapore integrated resort has largely been priced in.
"Stripping out its net cash/share of 90 sen, the stock trades at 8.9x FY10 PER. Maintain BUY with a target price of RM3.25 (10% discount to RNAV of RM3.60)."
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