Investment Highlights

• Genting Malaysia Bhd is reported to be seeking over US$1 billion in damages from Walt Disney Co and 21st Century Fox Inc for pulling out of an agreement to sponsor a Fox World theme park in Genting Highlands. We downgrade our call from BUY to HOLD with a lower fair value of RM0.58/share (from RM0.74/share). We have cut our earnings forecast for FY20 and FY21 by 21% and 30%. Our FV is based on a PE of 16.5x FY20F EPS.

• The 20th Century Fox World theme park in Genting was meant to be the first Fox-branded theme park in the world. However, as Walt Disney Co moves to finalize its acquisition of 21st Century Fox’s entertainment assets, it has decided not to proceed with the agreement. "Unlike Fox, which was perfectly happy to have the park situated a stone’s throw from the casinos of Resorts World Genting so long as it could continue to extract financial concessions," Disney wanted no ties to a gambling company because of its “family-friendly” brand strategy, Genting said in a complaint filed Monday in federal court in Los Angeles, according to Bloomberg.

• OWG is currently operating over 20 food service outlets (FSO) and over 15 family attractions in Genting making up circa 40% of its bottom line. Recall that the anticipated earnings growth prospect for OWG is from the spillover effect stemming from the opening of 20th Century World theme park that were expected drive foot traffic in Genting.

• With the exclusion of a branded outdoor theme park and uncertainty over the future direction of the outdoor theme park, we have reduced our estimated spend per outlet and operating margins for OWG’s Genting operations.

• Moving forward, we believe OWG will still be able to see improvements in its operations in Genting in the upcoming quarters stemming from the expected opening of Genting’s indoor theme park by end-2018. We believe foot traffic will still improve but in a significantly smaller quantum.

• The uncertainty surrounding Genting’s outdoor theme park actualization that is expected to improve visitor numbers clouds its earnings visibility. Key risks to OWG include decline in visitors, decline in foreign tourists, and further delay in the opening of the outdoor theme park in Genting.

Source: AmInvest Research - 27 Nov 2018