Sunday, January 8, 2012

Genting Malaysia: RWNY To Expand Further?

6 January 2012
Price Target: RM4.07
Share Price: RM3.89


News
# Genting Malaysia’s (GenM) subsidiary, Genting NY, has announced that it has entered into a non-binding letter of intent with Empire State Development Corporation to consider the development of an integrated mixed-use complex on real
property located adjacent to RWNY.

# The project is anticipated to cost at least US$4bn (~RM12.56bn) which will include an integrated 3.8m sq ft of convention and exhibition centre with up to 3,000 hotel rooms and an expansion of RWNY.

# However, both parties are still in the midst of negotiation, with a view of entering into a binding MoU on or before 30 November 2012.

Comments
# In view of the project, this could contribute positively to GenM as RWNY will become a full-fledged integrated resort rather than just a casino operator.

# If terms are agreed between both parties, this development would be the nation’s largest convention center, replacing Jacob K. Javits Convention Center in Manhattan.

# With a hotel and convention center built adjacent to RWNY, this could draw more visitors into the casino, especially businessmen who are on business trips and hotel guests.

# This development could be an added advantage for RWNY as it will be the only casino within New York City that offers hospitality services, which will indirectly increases its visitors’ convenience to get to the casino.

# The project also includes the expansion of RWNY to offer more machines (5,000 units currently) in order to cater for the additional customers.

# No detailed information were given on how long will this development take place if the terms are met. However, assuming the development takes 3 years to complete, GenM
will still have a healthy net gearing level of 0.1-0.3x.

Risks
1) Regulatory risk;
2) Weaker hold percentage;
3) Pandemic breakouts;
4) Cannibalization from Macau & Singapore;
5) Appreciation of RM and
6) Destination resort legislation not approved by Florida Legislature

Forecasts
Remain unchanged pending more information on the mentioned development.

Rating: Hold, Target Price: RM4.07
Positives
(1) Defensive stock;
(2) Monopoly in the industry; and
(3) New source of earnings from international markets to drive earnings growth

Negatives
(1) Highly regulated industry; and
(2) earnings highly dependable on luck factor and hold percentage.

Valuation
Target price remain unchanged at RM4.07. Maintain HOLD.



Source: HLIB Research

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