News

NST yesterday reported that Genting Highland’s Outdoor Theme Park will be closed for 2 years to undergo a major facelift.

The park is expected to officially stop operating from 1 Sept ’13. Currently, the management has close 2 of its rides, namely Fun Cart Grand Prix and Monorail ride since 1 July.

No further details were disclosed as to how much GenM will be spending on the mentioned refurbishments. However, it is expected that the group will make an announcement next Friday, 26 July.

Highlights

This further confirms GenM’s earlier announcement in early June where it is planning a RM3bn facelift for the casino resort in the highland.

We have also check on Resorts World Genting’s (RWG) website that the group is only accepting online payments for its outdoor theme park up to 31 Aug ’13. However, its Indoor Theme Park and Snow World are business as usual. According to the website, there are a total of 23 rides in the theme park.

Although no investment amounts were given, we expect the costs of refurbishment works is a part of the RM3bn facelift.

As to the impact of the closure of the theme park, we do not expect any major financial losses as entertainment revenues contributes only marginally to the group. Bulk of RWG’s revenue is being derived by its gaming activities while only ~5% are from entertainment.

Upon completion of the facelift in GenM’s Outdoor Theme Park, we believe there is potential that the group may charge its theme park tickets at higher prices. Current tickets are prices at RM54, RM30 and RM16 for adults/teens, children and senior citizens respectively.

On a side note, the potential loss from entertainment revenue could be offset by the higher-than-expected net wins obtained from the racino in Resorts World New York (RWNY). YTD, RWNY’s weekly average net wins stands at US$432/VLT/day, 14.6% premium to our forecasted net wins of US$377.

Risks

1) Regulatory risk; 2) Weaker hold percentage; 3) Pandemic breakouts; 4) Cannibalization from Macau & Singapore; and 5) Appreciation of RM; and 6) Full-fledged casino proposal not approved.

Forecasts

Unchanged, as loss of earnings from the closure could be offset by the potential upside from higher net wins in RWNY.

Rating

HOLD

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

Maintain HOLD on GenM with unchanged TP of RM4.10 based on SOP valuation.

Source: Hong Leong Investment Bank Research - 19 Jul 2013