News

• TauRx reported its TRx-237-007 Phase 3 Results of LMTX in behavioural variant frontotemporal dementia (bvFTD) at the 10th International Conference on Frontotemporal Dementias in Munich, Germany and released a statement stating that it failed to achieve its co-primary endpoints.

Comment

• TauRx a lost bet. With the latest development, we believe TauRx is considered a lost bet for GenT given any sort of monetization plan (if any) may take longer time as more resources would be needed to examine the deficiency of LMTX® in treating both Alzheimer's disease and bvFTD; despite some positive findings uncovered from the trials. We understand that TauRx still intends to meet European Medicines Agency (EMA) and US Food and Drug Administration (FDA) for its experimental Alzheimer’s drug LMTX® as a monotherapy but they concede that it is a lengthy procedure and no timeframe is set.

• 3rd Phase 3 Trial Results in Q4. As of now, two out of three Phase 3 clinical trials on the second generation TAU, LMTX had failed to meet its co-primary endpoints in Alzheimer's disease (TRx-015) and bvFTD (TRx-007). The clinical results of the 3rd trial (TRx-005) in up to 800 patients diagnosed with mild Alzheimer’s disease will only be published in Q4 2016.

• TauRx is an upside rather than downside. We believe that investors have largely priced in the perceived failure of LMTX® in treating both Alzheimer and behavioural variant frontotemporal dementia. Hence, any positive development from TauRx trials hereon will be a positive upside risk rather than downside risk.

• Focus on core business. The hardly hit oversea business operations (UK, Singapore) have been dragging GenT as a group but we notice some improvements and more stability is expected moving forward where the importance of operating efficiency is being placed upon given the overall challenging business environment.

Risks

• 1) Regulatory risk; 2) Weaker hold percentage; 3) Pandemic breakouts; 4) Appreciation of RM; and 5) Higher-thanexpected cannibalisation from Marina Bay Sands (MBS) and Macau casinos.

Forecasts

• Unchanged.

Rating

• BUY

• Maintain BUY rating on GenT given its undemanding valuation for a diversified, cash rich position holding company and a proxy for growth from its various undergoing expansion plans set to bear fruit from 2017 onwards. Our TP of RM9.55 remains unchanged as we have not factored in any valuation from TauRx.

• Positives – (1) Defensive business; and (2) New sources of earnings from expansion plans to drive earnings growth.

• Negatives – (1) Highly regulated industry; (2) Luck factor; (3) Regional competition.

Valuation

• Target price of RM9.55 remains unchanged based on our SOP-derived valuation.

Source: Hong Leong Investment Bank Research - 6 Sep 2016