Cash pile, fundamentals make resort operator a good bet
The large cash pile that Resorts World Bhd is sitting on is difficult to ignore. With RM4.6 billion in cash and cash equivalents, or 78 sen a share, the company is sitting pretty, especially at a time when cash is king.
Resorts' market capitalisation had been reduced to RM13 billion at year-end — a poor reflection of the group's strong fundamentals and huge cash pile. Debts are negligible, and it generates cash flow before working capital changes to the tune of more than RM1.2 billion annually.
As a result, many believe that the stock has been oversold. The consensus is Resorts, at its current low prices, may be worth a closer look. The stock, which was trading at RM4.02 in January 2008, came down some 44% to close at RM2.24 on Dec 30. The gaming operator's share price, like all other stocks, were affected by the global financial crisis. In November, it also hogged the limelight for the wrong reasons when it entered into a related-party transaction with its major shareholders.
Fifty-five per cent of analysts polled by Bloomberg have a "buy" call on the stock, while 31% have a "hold" and 14% a "sell". The consensus target price for the stock is RM3.
Resorts' net profit for 3QFY2008 ending Sept 30 fell 49% to RM340 million, from RM668 million a year earlier. However, it should be noted that its 3Q results in 2007 was boosted by one-off gains. Revenue for 3QFY2008 rose 9.8% to RM1.22 billion from RM1.11 billion, and for the nine months to September 2008, Resorts World registered a pre-tax profit of RM1.37 billion on a turnover of RM3.6 billion.
Resorts, like all the other gaming operators, was dealt a poor hand last year but the counter's current level coupled with the company's huge cash pile, steady operating cash flow and resilient business could prove a good bet for 2009.
