KUALA LUMPUR, March 30 — AllianceDBS Research has upgraded its recommendation for Genting Malaysia Bhd (GENM) to “buy” at a lower target price (TP) of RM2.40 from RM2.65 previously.
In a note today, the research house said although the financial year ending Dec 31, 2020 (FY20) is undoubtedly a challenging year for the group, given the Covid-19 pandemic, it believes that the situation is temporary and that the company’s operations will start picking up from the second half of FY20.
As such, even though the stock had dropped by about 40 per cent on a year-to-date basis with valuation metrics showing near or below the 1998 and 2008 crisis levels, the current share price is too cheap to ignore, it said.
“With value emerging, we advise investors with a longer-term investment horizon to take advantage of its current price weakness to accumulate the stock,” it touted.
At lunch break, GENM’s share went down one sen or 0.5 per cent to RM1.96 with 6.44 million shares traded.
Meanwhile, the research house noted that Genting’s outdoor theme park remains on track to commence operations in the third quarter of this year, despite the movement control order.
It is optimistic that the theme park could boost the volume of visitors to Genting Highlands and sustain the company’s growth prospects in the second half of FY20.
On the downside, the research house said besides the potential of a prolonged Covid-19 pandemic that could erode GENM’s earnings, the increase in casino tax by the government is another key risk to its ‘buy’ recommendation.
“Our sensitivity analysis shows that a one per cent increase in gaming tax could reduce its FY21/22 earnings by four per cent/ five per cent, respectively,” it added.
Under the 2019 Budget, the research house said the previous government had increased casino tax to 35 per cent from 25 per cent, effective January 2019.
“Prior to that, the last casino tax increase for Genting Malaysia was in 1998, where the rate was raised from a progressive scale of 22 per cent-25 per cent to 25 per cent,” it noted. — Bernama
