PETALING JAYA: The valuation of Genting Bhd’s shares are expected to improve with the strengthening of the ringgit against the US dollar.

       According to Maybank Investment Bank (Maybank IB) Research, historical data suggests that the recovering ringgit could turn out to be a share price catalyst for Genting.

       “There is a strong correlation between the ringgit-to-US-dollar exchange rate and Genting’s premium and discount to sum-of-parts per share because of its high foreign shareholding,” the brokerage said.

       In its report, Maybank IB Research noted that foreigners tend to buy Genting’s shares when the ringgit appreciates and sell the counter when the local currency depreciates.

       Maybank IB Research’s view was that the ringgit would recover to 4.15 per US dollar towards the end of 2024, as the Federal Reserve (Fed) pivots away from more interest-rate hikes after the end of 2023. Thus far, the Fed has guided for another 50-basis-point hike in federal fund rate by the end of this year.

       The ringgit was currently trading around 4.54 per US dollar after recovering from a recent low of 4.68 against the greenback as cooler inflation in the United States eased pressure on the Fed to raise interest rates.

       “While we continue to like it fundamentally as a post-Covid-19 recovery play, more than a decade of historical data tells us that the recovering ringgit is a share price catalyst,” it said.

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       Maybank IB Research maintained “buy” on Genting with a lower sum-of-parts-based target price of RM5.36, as compared to RM5.61 previously.

       The brokerage said its target price for the counter was cut in tandem with a downward revision in its estimated earnings for Genting to reflect slower-than-expected recovery at its key units, namely, Genting Malaysia Bhd (GenM) and Genting Singapore (GenS).

       “Following our lower earnings-per-share (EPS) estimates and target prices for GenM on slower-than-expected recovery in foreign visitor arrivals and GenS on lower-than-expected earnings margin, we cut our Genting EPS estimates by 24% for 2023.

       “We also cut our Genting EPS estimates 8% for 2024 and 5% for 2025,” Maybank IB Research said.

       It pointed out that its sum-of-parts-based target price for Genting was correspondingly cut by 4% to RM5.36 from RM5.61 on an unchanged 60% discount to sum-of-parts per share.

       “Notwithstanding, we still expect earnings to recover to 2019 levels by 2025.

       “Thus, we opine that our investment thesis on Genting as a post-Covid-19 recovery play still holds,” Maybank IB Research explained.

       In addition, it noted that Genting now scored higher in its proprietary environment, social and governance scoring methodology at 59, as compared to 46 previously.