Genting Malaysia unveiled its plans for the refurbishment of its flagship property Resorts World Genting (RWG) yesterday, also known as the Genting Integrated Tourism Plan, which has been designated as one of the Entry Point Projects (EPP) under the East Coast Economic Region. RM5bn has been set aside to upgrade the entire property, almost double from the RM3bn indicated initially. We view the development positively as the refurbishment is much needed to boost visitor volumes and revenues which have plateaued in recent years, but maintain Neutral as the results will only come to fruition in FY16 onwards.

RM5bn over 10 years. The redevelopment of RWG will take place over the next ten years in two phases, with RM4bn budgeted for the first phase which will include the Twentieth Century Fox World outdoor theme park (Figure 1), 1300 hotel rooms, premium retail outlets, a new cable car station and show arena for 10,000 people. The remaining RM1bn will be spent in the second phase, which is currently still under planning.

Boosting visitor arrivals in 2016. The Twentieth Century Fox World theme park will span 25 acres and is estimated to cost RM1bn (from RM400m initially planned). The theme park is expected to be opened in 2016, and we believe it will spur visitor arrivals to new highs. More importantly, the 1,300-room new hotel will also commence operations by 2016, which will be a major contributing factor for mass market growth, which has been capped in recent years due to the limited supply of hotel rooms in Genting Highlands. Recall that hotel occupancy rates have been maxed out at 93% to 94% for the past few years. The additional 1,300 rooms represent a 14% increase to existing room supply; a welcoming increase for the mass market which comprises more than 50% of GENM‟s gaming revenue mix.

Maintain Neutral with increased TP of RM4.35. We have fine-tuned our earnings model to adjust for higher revenue from London and expected impact from the theme park closure in the next two years (lower assumptions for visitor arrivals and non-casino revenue). Consequently, our net profit forecasts for FY13-FY16 have been lowered by 1% to 3%. We have however raised our target EV/EBITDA multiple for the Malaysian operations from 8.5x to 9x, which is still within the historical average, as we price in the better growth potential. Our TP has therefore been raised from RM4.08 to RM4.35 based on SOTP valuations (Table 1). We believe the newsflow will generate trading interest in the stock for the short term, but maintain Neutral as tangible benefits will only be seen in FY16 onwards.

Source: PublicInvest Research - 18 Dec 2013