Maybank IB Research has trimmed its share price target for global gaming giant Genting Berhad by 10% to MYR3.26 on concerns over “governance and social issues.”
In a note examining Genting – whose subsidiaries include both Genting Malaysia and Genting Singapore as well as various interests in energy, power and plantations – from an ESG (environmental, social, governance) standpoint, Maybank IR Research analyst Samuel Yin Shao Yang said it was unlikely that global environmental issues would significantly impact the company given these fields typically account for just 10% to 20% of group earnings.
“But governance and social issues may,” Yin said, with Genting Malaysia and Genting Singapore combining for between 80% and 90% of group earnings under normal market conditions.
Of particular concern, he explained, was Genting Malaysia’s history of related party transactions such as the 2019 acquisition of a 49% stake in struggling US gaming firm Empire Resorts, owner of Resorts World Catskills.
“We forecast Empire Resorts to contribute more than MYR100 million (US$24 million) in losses per annum,” Yin said.
Genting Singapore, he added, “operates in a highly-regulated environment which is getting stricter,” and although it has strong credentials at its Singapore IR Resorts World Sentosa, “the 50% hike in casino entry levies for Singaporean citizens and permanent residents [imposed on] 4 April 2019 eroded its gambler base.”
Maybank IB Research is also “unsure” if Genting’s US$4 billion Resorts World Las Vegas project, due to open in 2021, will be profitable going forward.
While Yin noted that Genting Berhad’s investments in various life sciences companies have the potential to pay off handsomely in the long-term, in the short-term the company has slipped and is now in danger of falling off the FTSE Bursa Malaysia KLCI – a capitalization-weighted stock market index comprised of the 30 largest companies on Bursa Malaysia by market cap.
Reviewed twice yearly, the next review is due on 23 November and on current weight would see both Genting and Genting Malaysia drop off the index to 33rd and 35th respectively.
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