Tuesday, November 27, 2018

GENM: Twentieth Century Theme Park in Trouble

This morning, a second "earthquake" hit Genting Malaysia Bhd ("Genm"). Genm announced that it has filed legal proceedings against the 20th Century Fox group (the Fox group) and the Walt Disney Company in response to a notice issued by the Fox group, in which it terminated the agreement to develop the Twentieth Century Fox World theme park in Genting Highland. In addition, the Fox group has claimed approximately USD46.2 million (or the equivalent of approximately RM193.6 million) in accelerated payments.

GENM denies that the Fox group had grounds to terminate the agreement, and it has pursued cause of action against the Fox group and Disney for inducing breach of contract and for interference with contract. GENM intends to fully enforce its rights under the agreement, claim for the cost of its investments and consequential and punitive damages that in total will exceed USD1 billion. For more, go here.

Genm, which was hit by increased gaming tax in the latest Budget (here), saw its share price plunged to a low of RM3.18 on November 5. It recovered some lost ground over the past 3 weeks and was trading at around RM3.50-3.60. This morning, Genm plunged to a low of RM2.93 on the news of the termination of the agreement to develop the Twentieth Century Fox World theme park. At the time of writing this post, Genm was trading at RM3.18-3.19.

It is hard to see why these 2 giant enterprises would walk away from a profitable business arrangement unless there is a very serious dispute which they couldn't come to an amicable solution. The alternative is a huge loss for either one or both parties which would be the last thing that they would want to suffered from. Let the reality of a huge loss knock some sense into the heads of the management of these groups. 

Meanwhile, you can see that the immediate support for Genm will be around the RM3.00 mark. Its resistance will be RM3.30 while the next support will be about RM2.60.  

Genm is a good investment stock. Its investment horizon is now stretched a lot further ahead while its value is probably more appealing. Those who have the stock, should hold onto it. Those who are waiting to buy, you should do so gradually. Good luck!

Chart: Genm's weekly chart as at Nov 27, 2018_10.00am (Source: Malaysiastock.biz)

No comments: