GENM- the casino in our backyard

"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.