GenM has just announced its results for QE31/3/2010 on May 27. Despite a 5%-increase in its turnover (from RM1.28 billion to RM1.35 billion), GenM's net profit dropped by 24% q-o-q (from RM358 million to RM272 million). On the other hand, its net profit dropped by a marginal 1% y-o-y while turnover was up by 14%. The q-o-q drop in GenM's net profit was attributable to impairment loss arising from the investment in Walker Digital Gaming, LLC ('WDG') of RM108 million.
Table 1: GenM's last 8 quarterly results
Chart 1: GenM's 15 quarterly results
Investors' Main Concerns
Two of the main concerns that investors have regarding GenM are:
i) the use of the company's funds for inter-company transactions, such as the acquisition of WDG in 2008; and
ii) the potential drop in GenM's casino business due to the opening of the casino by its sister company, Genting Singapore.
The first concern will persist but the second issue may be put to rest with the announcement of the latest results. I have prepared the charts for the revenue, pre-tax profit & pre-tax profit margin for GenM's Leisure & Hospitality division (which houses the casino operation) from June 2006 until Mar 2010. It is quite clear that despite the start of the Genting Singapore's casino operation in February 2010, the casino operation of GenM did not suffer at all. In fact, we can see that revenue & pre-tax profit have increased (as per Chart 2) & pre-tax profit margin has also inched up (as per Chart 3).
Chart 2: GenM's Leisure & Hospitality Division's top-line & bottom-line for the past 16 quarters
Chart 3: GenM's Leisure & Hospitality Division's pre-tax profit margin for the past 16 quarters
Valuation
As at 31/3/2010, GenM has cash reserves of RM5.273 billion and it also held AFS totaling RM1.618 billion. These cash-cum-liquid assets are equivalent to RM1.17 per share. If this amount is deducted from its closing price of RM2.80 yesterday, GenM is now trading at a PER of 7 times (based on last 4 quarters' EPS of 23 sen). If we valued GenM at a PER of 15 times & add back the cash-cum-liquid assets of RM1.17 per share, GenM would have a fair value of RM4.62.
Technical Outlook
GenM has been moving sideway, between RM2.70 & RM2.90 after "breaking" above its long-term downtrend line ('RR') in November last year. It re-tested that downtrend line last week at RM2.50. With the fear of revenue cannibalization by its sister casino in Singapore disproved, I believe that GenM's may see better prices in the near future.
Chart 4: GenM's weekly chart as at June 1, 2010 (Source: Quickcharts)
Conclusion
Based on good financial performance & cheap valuation, GenM is a good stock for long-term investment. However, its technical outlook is still neutral & showing no sign of a move to the upside.
I believe GENM is far below its fundamental valuation. However, this stock is not the cup of tea of many traders due to GENM wont bring excitement in term of sudden increase in profit. GENM's profit is forecastable and therefore no surprise would come from this stock. That why GENM is always hanging around 2.60-2.80 level that compare to Genting that swing in a wider gap. Genting provide an opportunity to invest both in GENM and GENS because GENTING is the holding company for both. However, Genting is not a cash rich company and burdened by high debt of GENS and therefore Genting only declare 7.2 sen dividend compared to 7.3 sen by GENM. The dividend yield is higher by GENM compare to Genting by looking their current share prices. Investing in share market not only capital appreciation by share prices but sometimes dividend received also play a role.
ReplyDeleteFor long term investor, GENM no doubt is better than Genting, but genting offer another type of opportunity ie grownth and expansion of GENS, power division as well as plantation division. I personally think that investor should buy in both Genting and GENM for their investment and I think the ideal holding propotion is 30:70. Hi Alex, what u said?
That is cool. .. alex and kenny. .. but i still believe that genm mainly gambling business will effect by the gens casino, and yet, gens at singapoer will lost to another competitor casino due to the cost of develop the casino, design, services..any many more.
ReplyDeleteLooking at fundamental of genm, that is very good since 2 years back. Many of the investor hope that genm can pay out RM1 special dividend, but yet the management still did not do it. Reason: intra company loan is better.
Dear Alex
ReplyDeleteWould you mind to comment on Manulife and Crestbuilder. Both are trading at PE<8x and trade cum dividend of 17sen (yield 6.5%) and 4sen (5.7%) now, but the share price seem lack of momentum...
Hi Alex ,
ReplyDeleteneed your comment on Ajiya
Thanks
Hi Kenny & Ivan,
ReplyDeleteThanks for your comments on Genting & GenM.
Hi hng,
ReplyDeleteManulife is still in an uptrend, with support at RM2.40. Its immediate horizontal support is at RM2.50-55.
Crestbuilder has been moving sideway and testing its strong horizontal support of RM0.70 for the past 8-9 months. With a rounding top formed, a break below the RM0.70 support would be the start of a downtrend for this stock. It may have some support at RM0.65, which is the medium-term uptrend line. However, the crucial level to look out for is the RM0.70 support level.
HI Alex, could you advise and comment on Jerneh Asia and Jerneh-WA? what do you think of the sales of jerneh insurance to third party? It's been brewing for a while now. Suddenly both counters seem very quiet after the initial hoo-haa.
ReplyDeleteHi Pan,
ReplyDeleteAjiya is in an uptrend with support at RM1.77. This nearly coincides with the horizontal support of RM1.78. This support level (of RM1.77-78) was tested 2/3 days ago & the stock has rebounded quite well. It may test its short-term downtrend line resistance at RM2.00-2.05 soon.
Bro, IOI today break up more than RM5. .but just for my feeling that the local mkt is support by gov. ..refer to the other region mkt .is not bull as msia today...
ReplyDeletei x think europe financial system are ready.. once a while, maybe coming soon will "bomb" again..
djia seem can close green, but will it still green the day after tomorrow? else, may send the djia to south...
any idea bro ?
Hi CK,
ReplyDeleteMy earlier comment regarding Jerneh Asia remained unchanged (go to the link below). I think Jerneh is richly valued at about the RM3.00 level. It's trading at RM2.90 now, which is still a good level to take profit on this stock.
http://nexttrade.blogspot.com/2010/05/time-to-take-profit-part-2.html
Dear Alex,
ReplyDeleteAppreciate your comment on KFIMA. It's EPS has increased from 17.54 cent to 22.32 cent while it's cash reserve has increased from 51million to 128 million. While it's business model seems sustainable in years to come, is it worth to hold for long term?
Hi Ivan,
ReplyDeleteYou sounded a bit frustrated, maybe even confused. Take it from me- you are not the only one.
Global equity markets are rebounding but can they pull off a hat-trick, i.e. surviving another correction like June 2009 & February 2010. Nobody knows. As at yesterday, we can see only two major stock markets trading above the 200-day SMA line- DAX & Nasdaq. The other major markets are still trading below the 200-day SMA line. These include DJIA, FTSE, CAC, AOrd, Nikkei, Kospi, TWII, SSEC, HSI, STI, BSE, BVSP & RTSI.
I am inclined to believe that equity market will move sideway for the next few months. Hopefully, a well rested bull will greet again at the end of the year. Meanwhile, some stocks are slowly turning positive again in our market. While I hate to get into the revolving door situation, I may post on some of these stock in case some readers would like to do trading BUYs or just buy back what they had sold earlier.
bro , thanks.
ReplyDeleteu are really geng. .can sense i am a bit blur. confuse..
the mkt make me very blur now..
scare buy , and later drop.. heavily.. .better i sideaway as well .. isntead of taking the risk.
Hi Alex,
ReplyDeleteCan you comment about Integrated Rubber Corporation ? what is the entry point ?
Alex,
ReplyDeleteAm still holding Talam & Melewar, but Talam is like going no where lol? :(
Thank you.
Hi phkoay,
ReplyDeleteIntegrated Rubber Corporation ('IRCB') is a marginally profitable company. It reported a net profit of RM5.2 million for FY2009 as compared to a net loss of RM5.0 million in the previous year. EPS for FY2009 was 2.2 sen only. Fundamentally, IRCB is over-valued.
The stock has broken below its medium-term uptrend line at RM0.80-82 in mid-May. At the same time, IRCB has been declining since the high of RM1.87 on Jan 14, & that downtrend takes the sharp of a wedge. An upside breakout of the wedge at RM0.70 could lead to a mildly bullish move for the stock.
There is a disincentive to get into this stock since it had broken its uptrend. However, if it can break above RM0.70, you may try to hitch a ride on a potential upside move. To buy below the breakout level may not a good idea.
Hi kit,
ReplyDeleteI am sorry to hear about the poor outcome of your investment in Talam & Melewar. Talam is still hanging onto its horizontal support at RM0.14 & if that failed it may test its medium-term uptrend line at RM0.125. Talam's near-term outlook is likely to be dull & bearish as Keuro continued to unload its large holding of Talam shares onto the market.
For Melewar, the breakout above the strong horizontal resistance at RM0.75 had since turned into a bull trap. Melewar is now trapped within the heavily congested area of RM0.55-75, with multiple horizontal support & resistance. When can it breakout again is hard to tell.
Dear Alex,
ReplyDeleteI think the KLCI shall trade within a close range between 1260-1300 (a range between its approx. 100D EMA and 200D EMA)for a considerable length of time.
For stock traders, I would propose to stay aside temporarily, unless you have a opportunity to pick up a rare gem which is rather slim.
Looking forward, the impending storm in Euro Union and the slow recovery in US and imminent problems in China, are ALL requiring a substantial time frame to settle the dust.
Until we can see the first clear Light from this Dark tunnel, Stock Trading at Bursa Exchange shall be deferred, unless you are a traders for Future Indices(FKLI).
Thanks .
Dear Alex,
ReplyDeleteFor Ivan on IOICORP, may be Ivan can go to this link to have additional info and comments :-
http://millionaireclub88.blogspot.com/2010/06/brief-covering-on-bursa-malaysia-kl.html
Thank you
hi alex. Proton share price rise up gradually these few days even newspaper said the deal with VW no success. how u view this, will the deal on?? since the share price up instead down after this bad news. will the punter try to accumulate cheap price before exciting annoucement?
ReplyDeleteDear Kyong ,
ReplyDeleteThank you very much for send me the link. FYI, Ivan is bear mind. :D
Hi wong,
ReplyDeleteProton is hanging onto to its strong horizontal support at RM4.65-70. This is also the support level for the medium-term uptrend line that stretched back to June 2009.
Hi Alex,
ReplyDeletebase your previous comment on steel request in china is slowdown. Do u thinks CSCSTEL still can buy, what is best entry level?after or before div?
thanks
My only worried of not acquire more GenM share is what if Pakatan Rakyat win the next general election...
ReplyDeleteI willing to lose money if pakatan wins the next election. That would be slim instead.
ReplyDeletedear Alex,
ReplyDeleteIs SUCCESS still a good stock to consider based on the current price of RM1.09? Any solid fundamental for this price to surge in event of market recovery.?
Thanks.
Hi Pan,
ReplyDeleteOver the past 3 quarters (from 30/9/2009 to 31/3/2010), CSCStel's pre-tax profit has been declining from RM53.6 mil to RM43.0 mil to RM39.1 mil while turnover has been rising from RM261.5 mil to RM273.7 mil to RM281.6 mil. After the results for QE31/3/2010 was released on May 7, the share price started to drop from about RM2.00 to about RM1.75.
Technically speaking, CSCStel should find support at RM1.75 on the accelerated uptrend line that began in December 2009. If this uptrend line is violated, CSCStel may drop to the medium-term uptrend line support at RM1.65.
Fundamentally, CSCStel is trading at undemanding PER multiple of about 5.5 times (based on annualized EPS of 32 sen).
Hi Marco & KENNY BLOG,
ReplyDeleteI would have to agree with Kenny that the political scenario of a Pakatan-led federal government is quite remote at this moment. However, I doubt GenM's casino license would be revoked even if that scenario panned out. The main concern is a drop in its revenue due to competition from the 2 casinos in Singapore. For that, we need another few quarters of results to put that fear to rest.
Dear Alex,
ReplyDeleteCould you kindly comment on KFIMA.
Thank you very much.
Hi Layman,
ReplyDeleteAt the current price of RM1.10, SUCCESS is trading at a PER of 6.9 times (based an annualized EPS of 16 sen). At that PER multiple, SUCCESS is reasonably priced. It may trade up to a PER of 8 times or at a fair value of RM1.28 if market condition permits.
Chartwise, SUCCESS may have made a temporary top & would likely to drift sideway for a while.
Hi TehGK,
ReplyDeleteKFIMA is holding onto the strong horizontal support of RM0.90-92, which is also the medium-term uptrend line support. At the current of price of RM0.92, KFIMA is trading at a PER of 4.2 times (based on last 4 quarters' EPS of 22 sen). At this multiple, KFIMA is deemed very attractive.
Dear Alex,
ReplyDeleteThanks!!