Genting - A Closer Look At TauRx

Genting’s share price has moved up by over 20% over the past two months. We believe this is due to speculation on the potential listing of its 21%-owned pharmaceutical unit TauRx as well as the return of foreign interest, given its high foreign shareholdings level of approximately 50%. At current levels, we believe upside is limited. Maintain NEUTRAL with our TP revised to MYR9.08 (from MYR8.00, 2% downside).

TauRx a giant in the making? TauRx Pharmaceuticals (TauRx) plans to present results from its third phase of human trials on its experimental Alzheimer’s drug known as LMTX by Jul 2016. According to preliminaryresearch results published in the Journal of Alzheimer’s Disease, patients whotook its LMTX treatment had better cognitive scores than those who did not receive it. Should the results prove to be favourable, the Wall Street Journal reported that the group would file for an IPO with an indicative market capitalisation of USD15bn.

Impact on Genting. While we acknowledge that the market potential for TauRx could be massive, with more than 40m Alzheimer’s patients estimated worldwide, we highlight that there were about 123 experimental Alzheimer’s medicines that had failed to commence commercial production between 1998 and 2014. Based on our channel checks, Genting has invested USD120m for its existing 21% stake in TauRx. Should the IPO materialise, the value of Genting’s stake in TauRx could blloon to over USD2.2bn (assuming its 21% stake would be diluted to 15% post-IPO). This could potentially translate into value accretion of MYR2.30-2.50 per share in Genting. We have yet to factor this into our valuation, pending the confirmation of results from its latest trials. Las Vegas to open in 2018. The proposed USD4bn Resorts World Las Vegas (RWLV) recently received the green light from the Clark County commissioners to proceed with construction. The site office and parking garages are currently being constructed and would be completed by mid-2016. Management highlighted that the public tender on the work packages would soon be called, with physical construction works likely to begin in 2H16. We reiterate our view that phase one of the project would open earliest by mid-2018. Although nearterm earnings-accretion is unlikely, RWLV could, in the long run, help to address investors’ perception of the group being a holding company.

Maintain NEUTRAL. We raise our TP to MYR9.08 (from MYR8.00), factoring in our latest valuation on its listed subsidiaries and pegging a revised discount of 15% (from 25%). This is to reflect improved market sentiment amidst te return of foreign institutions (as evidenced by YTD net inflows of MYR1.6bn by foreignthe limited downside, we maintain our NEUTRAL call. The upside risk to our call would be clinical results of LMTX proving favourable, while key downside risks include further delays for RWLV and unsuccessful clinical trials.

Source: RHB Research - 29 Mar 2016