Friday, June 11, 2010

AmResearch maintains buy calls on Genting, GenM

KUALA LUMPUR: AmResearch has maintained its buy call on GENTING BHD [] at RM6.94 with a fair value of RM7.66 and said Genting New York LLC's reported bid to construct and operate a slot machine-only casino at New York Aqueduct Racetrack as positive.

AmResearch said the bid would act as a platform for Genting Group to expand further in the US.

"Also, it should be earnings enhancing in the long-term although we reckon that any profit contribution could be small in the early stages," it said in a note Friday, June 11.

The research house said based on 4,500 slot machines, slot wins of US$350/day and EBITDA margin of 20%, it estimates that the racino (racing track and casino) could record annual EBITDA of US$115 million (RM379 million).

"Assuming Genting New York's shareholding in the joint venture is 50%, then the company's share could be US$58 million (RM190 million). Genting Bhd's EBIT was about RM2.7 billion in FY09.

"Assuming a Price/EBITDA of 10 times, then the racino could be worth US$1.2 billion (RM3.8 billion). Genting New York's 50% share would be US$575 million (RM1.9 billion)," it said.

AmResearch said the issue was whether the project would be injected into the subsidiaries of Genting Group as Genting New York is believed to be owned by Tan Sri Lim Kok Thay.

It said the only subsidiary with financial muscle to acquire the racino project should Genting New York win, was Genting Malaysia Bhd (GenM).

GenM's cash reserves stood at RM5.3 billion (US$1.6 billion) as at end-March 2010, it said.

"We maintain buys on Genting Bhd for its regional casino exposure and GenM for its potential overseas expansion," it said.

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