Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD
Research House: ECMLIBRA

Genting Malaysia Bhd
(July 30, RM2.85)
Maintain hold at RM2.76 with target price of RM2.78: In this report, we study the Aqueduct bid and the industry it operates in. The industry recorded 35% CAGR in revenues over the last five years due to the opening of Empire City Casino just outside New York City and successful bus programmes. It even weathered the global credit crunch, growing 7% year-on-year in FYE March 2010 due to the aforementioned factors. Empire City Casino has the highest average daily win per VGM of all the video gaming operators at US$286 (RM909) due to its superior urban location.

More than half of industry revenues are channelled to the state education fund and the New York Lottery, Perusing the Aqueduct Request for Proposal (RFP), the successful bidder will be entitled to 30% to 31.5% of VGM revenues. This is likely lower than the other video gaming operators, because the successful bidder will also have to channel VGM revenues to the New York Racing Association (NYRA) and its breeders.

We believe that Genting Malaysia will secure the concession because (i) it is the sole bidder after the SL Green-led consortium and Penn National Gaming were disqualified (ii) the NYRA will be insolvent without its share of Aqueduct's VGM revenues, and (iii) the locals are looking forward to the 1,300 temporary and 800 permanent jobs it will create.

Assuming average daily win per VGM of US$300, or 5% higher than Empire City Casino's due to its strategic location within the New York City limits, we estimate that Aqueduct will generate some US$30 million in net profit. Assuming an average US dollar/ringgit exchange rate of RM3.30, and 2% interest income foregone on the US$300 million licensing fee, the Aqueduct will accrete 6% to Genting Malaysia's FY2012 earnings.

Strangely, the market seems to have accounted for the US$300 million licensing fee already by discounting all of Genting Malaysia's net cash. Securing the concession will add 19 sen (ex-licensing fee discounted cash flow [DCF] value) to RM2.97 from our ex-net cash DCF-based valuation of RM2.78. With only 8% upside potential if the Aqueduct bid is secured, we still rate Genting Malaysia as a hold. We maintain our estimates for now pending the bid result but employ the RM2.78 target price (RM2.48 previously based on Resort World at Genting only). ' ECM Libra Investment Research


This article appeared in The Edge Financial Daily, August 2, 2010.