Thursday, July 28, 2016

Genting Bhd : Drug trials not positive HOLD

Genting Bhd : Drug trials not positive      HOLD

We are downgrading Genting Bhd from BUY to HOLD with a lower fair value of RM9.66/share vs. RM10.20/share previously. We have increased the holding company discount from 5% to 10% as the market is expected to give a higher risk premium to Genting Bhd following the failure of TauRx's drug trials. Yesterday, TauRx Pharmaceuticals announced the results of its Phase 3 clinical trials. TauRx said that its drug, LMTX only worked if people were not taking other Alzheimer drugs. The tone from news wires is negative. Reuters and Wall Street Journal (WSJ) said that the drug had failed to improve patients' cognition or daily functions.

According to WSJ, patients received LMTX on top of their existing Alzheimer medications in the trials. After 15 months, patients taking LMTX did not perform any better than the placebo when it came to cognitive tests. TauRx said that it intends to seek regulatory approval for LMTX as a monotherapy drug. This means that patients can only take LMTX as their sole drug for Alzheimer's. It remains to be seen if regulatory agencies in US and Europe would require TauRx to carry out more studies. This development is negative for Genting Bhd. Genting Bhd's share price has risen in the past couple of days on speculation that the drug trials would be successful and as such, TauRx would be able to commercialise the drug and list on Nasdaq in 2017F. Genting Bhd owns a 20% stake in TauRx. Without the positive news flow, Genting Bhd's share price is expected to be unexciting as operating conditions for the casino industries in Singapore and UK are likely to be soft. Genting Singapore is forecast to release its results on 4 August 2016. Based on Marina Bay Sands' 2QFY16 performance, there is risk that the group's financial results may not be inspiring. Genting Singapore accounted for 45.6% of Genting Bhd's EBITDA in 1QFY16.

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