GenM reported its results for QE30/9/2009, where its net profit increased by 8.8% q-o-q or 5.4% y-o-y to RM359.5 million while turnover increased by 11.1% q-o-q or 9.1% y-o-y to RM1.336 billion.
Table 1: GenM's 8 quarterly results
Chart 1: GenM's 14 quarterly results
Financial Position
GenM is in a very healthy financial position as at 30/9/2009, with current ratio at an excessive 6.0 times and no bank borrowings. It has bank balances of RM3.098 billion, short-term investment of RM2.201 billion and available-for-sale financial assets of RM1.275 billion. If the short-term investment and available-for-sale financial assets can be realized, GenM would be sitting on a cash reserve of RM6.574 billion. This gives each GenM share a cash backing of RM1.11.
Valuation
Based on the annualized last 3 quarters' EPS of 22.5 sen & yesterday closing price of RM2.87, GenM has a PE of about 12.8 times. If the cash backing of RM1.11 per share is deducted from the closing price, then GenM's PE is only 7.8 times. That would make GenM the most attractively-valued large casino in this region.
Technical Outlook
As noted earlier, GenM has broken above its medium-term downtrend line at RM2.85. However, the stock failed to recruit sufficient following to launch into a rally.
Chart 2: GenM's weekly chart as at Nov 26, 2009_9.50am (Source: Quickcharts)
Conclusion
Based on continued good financial performance, attractive valuation and bullish technical breakout, GenM is a good stock for both long-term investment & short-term trading. Despite all the positives, the stock continued to disappoint investors.
3 comments:
Hi Mr Alex,
Does this mean investors are shunning gaming stocks due to the current economic condition?
How will this affect parent Genting ?
Appreciate your feedback.
Thank you.
Hi JR,
Investors are worried that Genting Singapore (or, Resorts World at Sentosa) will affect the business of Genting Malaysia (or, Resorts World Genting).
By comparing GenM's PE ratio of 12.8 times with a generally accepted market PE of 15 times, we can conclude that the market is currently expecting GenM's earning to drop by 15%. This may appear reasonable but it does not factor in the cash holding of GenM.
If we were to factor in the cash holding, then GenM's PE is about 7.8 times. Comparing this with market PE of 15 times, we can see that the market is currently expecting the earning to drop by 48%.
So, we have a situation where the market either ignores the strong cash holding of GenM or it expects a sharp drop in its earning. This extreme discounting creates opportunity for patient investors.
My humble observation is that GENM is making its core operations shift to other countries. This presents some operations and country risks as well, maybe the market is trying to factor this in.
Based on the past year records, the stock had a strong rise tendency in December/CNY month. Hope the tradition is continue this year, with the opening of Sentosa centre in JAN10.
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