Oct 30, 2011

Impact To Genting Malaysia

Genting Malaysia  Hold (Share price:  RM3.75 Target price:  RM3.72)

Acquiring two companies from GENS
Business rationalisation
.  We do not expect  Genting Malaysia’s (GENM) proposal  to acquire  two  companies from subsidiaries of its sister company, Genting Singapore (GENS SP; Buy; TP: SGD2.06) for RM50m  to negatively impact its share price  being a business rationalisation decision. Furthermore, the consideration is small at only 2% of our FY11 net cash balance estimate and implies only 5.4x 2010 PER. Maintain Hold call and RM3.72 DCF based TP.

Small related party  transaction. GENM entered into  two  sales and purchase agreements with Sedby Limited (Sedby) and Geremi Limited (Geremi)  to acquire 100% of E-Genting and Ascend International for RM50m cash. Sedby and Geremi are 100% owned  subsidiaries of GENS.  In turn, GENS is a 52% owned subsidiary of Genting (GENT MK; Hold; TP: RM10.20). GENT also owns 49% of GENM.  Valuations appear cheap. E-Genting is involved in the provision of IT services and consultancy, research in software development, and provision of loyalty programme management services.  Ascend International  is  involved in investment holding, provision of IT services and marketing.  Valuations wise, the  RM50m  purchase consideration implies an undemanding 5.4x 2010 PER and 2.1x 2010 P/BV. 

Maintain  earnings  estimates.  The acquisitions are expected to be completed  by  31 Oct 2011.  On a full year basis, we expect both companies  to contribute RM8.2m  p.a.  (RM9.2m net profit  -  RM1m interest  income  foregone assuming 2% interest rate) or  <1%  to  our FY11  earnings estimate.  Coupled with the  RM50m  purchase consideration comprising only 2% of our FY11 net cash balance estimate, we leave our earnings estimates unchanged.

Unlikely to negatively impact share price. Management explains that as some two thirds of the two companies’ customers are GENM’s rather than GENS’ customers, it is more rationale  that both companies be parked at GENM rather than GENS. We concur and given that this related party transaction is small and to be transacted at low valuations,we do not expect it to negatively impact its share price.


by Maybank IB