Mother 7.02
0.285 Genting CM ,(10:1), 4.45 expired June 3, 2010
0.85 Genting CN, (4:1), 3.80 expired July 19,2010
0.355 Genting CO, (10:1) ,3.50 expired Feb 19, 2010
Written by Joyce Goh
Monday, 22 June 2009 00:00
GENTING BHD []’s warrants may provide investors keen on the mother share a cheaper entry into the conglomerate. There are three Genting call warrants, namely Genting-CM, Genting-CN and Genting-CO, listed on Bursa Malaysia.
The three warrants are trading at a slight premium to the mother share. Genting-CM ended last Thursday at 16.5 sen and has an exercise price of RM4.45. This means that with a conversion ratio of 10:1, the warrant is valued at RM6.10 (0.165 x 10 + RM4.45). Meanwhile, Genting-CN closed at 49 sen last Thursday and has an exercise price of RM3.80. As a result, the warrant, which has a conversion ratio of 4:1, is valued at RM5.76 (0.49 x 4 + RM3.80).
Genting-CO is the cheapest of the lot. Its exercise price is RM3.50 and the warrant has a conversion ratio of 10:1. Ending last Thursday at 20 sen, the warrant’s current value comes up to RM5.50 (0.20 x 10 + RM3.50).
With the mother share ending last Thursday at RM5.35, Genting-CM is trading at a 14% premium to the stock while Genting-CN is at a 7.6% premium and Genting-CO at a 2.8% premium.
All three warrants expire next year. Genting-CM expires on June 3, 2010, Genting-CN on July 19, 2010, and Genting-CO on Feb 19, 2010.
Warrants are generally bull market tools. In a bear market, warrants might decline further as they tend to drop faster than the mother share. However, in the case of a price rebound, warrants also tend to rise faster than the mother share. So, if an investor believes in Genting’s upside, he could consider buying its warrants.
Recently, Malaysia’s only casino operator created much excitement after news broke that it had paid US$100 million (RM350 million) for a 3.2% stake in US casino operator MGM Mirage. This sparked speculation that the two companies would be forming a powerful global alliance. It also fuelled talk that Genting would be tapping the coveted gambling market in Macau through MGM Mirage. But it is not clear which entity in the Genting group acquired the equity stake in MGM Mirage.
In an email reply to The Edge Financial Daily recently, MGM’s public affairs senior vice-president Alan M Feldman said: “We have had specific discussions about Macau but would not rule out Genting’s participation if it made strategic sense for all parties.”
He also disclosed that other than Macau, the two parties had started discussions on possible marketing relationships, strategic ventures and partnerships globally.
The buzz surrounding a possible tie-up with MGM Mirage sent Genting’s stock into the stratosphere. The stock hit a 52-week high of RM6.05 on June 10. This was a 90% jump from the stock’s 52-week low of RM3.18 recorded just three months ago on March 10.
The stock has since eased, closing at RM5.35 last Thursday.
Regardless of the potential earnings any such partnership might bring to the table, the operating environment for casino operators continues to be tough. For its 1QFY2009 ended March 31, Genting reported a 51.5% decline in net profit to RM213.12 million from RM439.41 million a year ago. Earnings were impacted by an impairment loss from Star Cruises Ltd and the weaker performance of its PLANTATION [] division.
Announcing the results in end-May, the company expressed concern about the rest of the year as its prospects may be affected by the uncertain pace of global economic recovery. It added that concerns about the spread of the Influenza A (H1N1) virus might also affect consumer sentiment and visits to Genting Highlands Resort.
Despite this, analysts are upbeat about the stock. The majority of analysts polled by Bloomberg had a “buy” recommendation on Genting, with a 12-month consensus price of RM6.02.
Thus, although all three of Genting’s warrants are trading at a premium, the earliest warrant to expire has eight months to go. Therefore, investors who believe things will pick up for the gaming operator when its massive project in Singapore commences operations, and that its “possible partnership” with MGM Mirage will take it to greater heights, could gain a cheaper entry into this stock through its warrants.
This article appeared in Capital page of The Edge Malaysia, Issue 760, June 22-28, 2009