"A bird in the hand is worth two in the bush."
Genting Malaysia Bhd ('GENM') has been ignored with all attention now focused on Genting Singapore PLC ('Genting SP'). Despite a better set of results for 2Q2009 ended 30/6/2009, the share price has dropped off from its recent high.
For 2Q2009, its net profit increased sequentially by 20.0% to RM330.5 million while turnover increased by 2.3%. The disproportionately bigger increase in net profit was due to better performance in the leisure & hospitality segment; gain on sale of investment of RM15.8 million; and receding quarter's impairment loss of RM30.4 million. Compared to 2Q2008, net profit was lower by 14.0% while turnover was lower by 3.1%. The disproportionately bigger drop in net profit was attributed to weaker luck factor in the premium players business & lower interest income.
Table 1: GENM's 8 quarterly results
Chart 1: GENM's 13 quarterly results
GENM (closed at RM2.72 yesterday) is now trading at a PE of 12.8 times (based on annualized 1H2009 EPS of 10.59 sen). If we valued GENM at a PE of 15 times, then its fair value is about RM3.18- giving a moderate upside of 17%.
From 2004 until today, GENM's share price has been rising in a gradual uptrend, SS. The uptrend accelerated from end 2006 to mid-2007 (with the accelerated uptrend line denoted as S1S1). S1S1 was unsustainable & correction set in late 2007. The share price drifted lower under the downtrend line, RR. That downtrend accelerated into R1R1 in early 2008. R1R1 broke through the long-term uptrend line, SS. In late 2008, GENM broke above R1R1 and rallied upward until it hit the resistance posed by RR. The last 6 weeks' correction resulted from that unsuccessful attempt on RR. GENM's share price should be well supported by the long-term uptrend line, SS at RM2.70. If GENM can break above the downtrend line, RR at RM2.90 on its next attempt, I expect GENM's share price to rally strongly.
Chart 2: GENM's weekly chart as at Sept 2, 2009 (Source: Quickcharts)
In conclusion, we should not ignore the proven casino in our own backyard. Based on improving performance & reasonably attractive valuation, GENM could surprise on the upside.
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