News

Caribbean Journal reported that GenM’s Resorts World Bimini (RWB) project has received the go-ahead to begin a US$150m new phase of development (~RM476.8m).

Bahamas Prime Minister Perry Christie announced that he had agreed to the company’s request, with the new project expected to create “a most attractive, charming and compelling mixed-resort mecca,” he said.

The US$150m project will cover a three-year period, with plans for two low-density hotels comprising 600 rooms, an expanded casino and new museums.

Highlights

The announcement came as a positive surprise as we did not expect GenM to carry out an expansion to its newlyopened RWB so soon after the commencement of operations on 28 June 2013.

The expansion which includes other facilities such as hotels and museums, is in line with GenM’s traditional approach which will widen its coverage in the western country. Hence, we are positive with this development.

Moreover, given that RWB also operates a cruise ship, we believe this could be an advantage to the group as it is the first cruise destination in the country with dedicated services.

According to the timeline reported, the expansion is expected to be completed earliest by mid-2016. Upon completion, we believe RWB would experience a leap in growth through increased casino patronage and visitorships.

Given GenM’s strong cash position with net cash and FCF of RM3.8bn-RM6.2bn and RM2.0-2.3bn (FY13-15) respectively, we do not foresee that they will be having any funding difficulties for this development.

As for the plans to build a destination resort in Miami, GenM and other US-based gaming companies are continuously pushing the Florida legislation to allow casino gambling outside of tribal land and pari-mutuel facilities.

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, pending for more information on the mentioned development.

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 - 24 Jul 2013