Opportunities and Risks: Is Genting a Viable Investment Option?

Genting's stock has surged 25% since last December and gained 8.66% year-to-date (YTD), closing at RM5.02 on Tuesday. For FY2023, Genting posted a net profit of RM929.2 million, rebounding from an RM299.9 million net loss last year.

Genting is anticipated to benefit the group from the rising international visitations at Resorts World Genting and Resorts World Singapore, driven by more frequent global flights, especially from China, thanks to the visa-free agreement. Additionally, Resorts World Las Vegas is projected to benefit from increased convention and event visitations in Las Vegas.

CGS International believes that the plantation and property sectors could serve as key stimulants for a resurgence in profits over the next few quarters.

Palm oil supplies are expected to tighten in early 2024 due to reduced seasonal output and challenging weather affecting harvests. Production in Malaysia and Indonesia is likely to plateau, hitting a four-year low with an estimated drop of 200,000 to 300,000 tons. Declining stockpiles, spurred by festive demand and higher biodiesel use, point to decreased inventories. Leading analyst Thomas Mielke predicts a notable increase in palm oil prices for this year and the next, exceeding present averages.

Moreover, some analysts maintain a positive outlook on Genting Plantations, expecting a modest increase in Fresh Fruit Bunches (FFB) growth at its Malaysian estates,coupled with a reserve of 3,000 hectares designated for replanting. Additionally, lower production costs and more normalized tax rates are anticipated.

Genting Plantations Bhd, through its property division, is set to introduce new properties valued at approximately RM480 million in 2024, reports Maybank Investment Bank Research. This includes RM230 million in industrial properties in Batu Pahat, initially slated for 2023, and around RM250 million in mainly residential projects at Genting Indahpura, Kulai.

While this will lead to growth potential for Genting Plantations' property division, earnings will increase slowly, as land sales are not imminent unless they enhance existing township value.

Genting Plantations has significant development prospects with three projects: a nine-acre site in Segambut purchased in 2016 for RM66 million, a 1,067-acre area in Sepang, and a 23-acre parcel in Sentul City, Jakarta, acquired in 2021 for RM127 million. These projects could be key drivers for the group's future earnings growth.

Ahead of TauRx Pharmaceuticals' Phase 3 LUCIDITY trial results for its Alzheimer's drug HMTM, Maybank IB recommends investors consider Genting's life sciences endeavors. With regulatory discussions underway in the UK and US, a positive outcome and a TauRx valuation at US$15 billion may boost Genting's target price to RM9.40.

With global crude prices falling in FY2023, Genting's oil and gas revenues have dropped. Crude prices are volatile, driven by factors like US inventory cuts, Saudi price adjustments, OPEC+ cuts, and Middle East tensions, but also affected by Fed rate cuts and seasonal demand shifts. This uncertainty may affect Genting's future oil and gas sector performance.

Additionally, Genting Singapore's projected operating profit margin compression in 2024 is primarily due to an increase in bad debt losses. These losses are mainly associated with management's strategy of extending credit to VIP gamblers, which involves considerable risk and uncertainty for future financial control.

In the plantation sector, downstream manufacturing will face fiercer competition from Indonesian counterparts due to the price disparity arising from export levies, which gives Indonesian peers a competitive advantage in raw material costs.