News

GenM’s Resorts World Gentng (RWG) has announced its licensing partnership with Twentieth Century Fox (TCF) to develop the first international TCF Theme Park, spending over RM400m for the development.

The project will be part of the RM3bn capex to be spent across 5 years for the refurbishment of the highlands resort, which also includes the construction of an additional 1,300 hotel rooms adjoining to First World Hotel.

Highlights

We remain positive on RWGs initiative to refurbish and improve its 35-year old theme park although it has been anticipated from the brief announcement last week.

The collaboration marks the first TCF Theme Park in the world, which we believe will give RWG an advantage in attracting visitors (both local and foreign) given the first-ofits- kind and exclusivity theme park.

Moreover, amid strong regional competition, this is RWG’s move to elevate itself to a higher level of competitiveness in the coming years. The new theme park would definitely pave the way for continued business growth and ensuring RWG remains relevant and an exceptional destination resort both locally and internationally.

Featuring more than 25 rides and attractions with film brands including Ice Age, Rio, Alien and Night at the Museum, we believe RWG will regain visitorship upon opening in FY16. We expect the theme park to perform exceptionally well during the first two years of operations (FY16-17) due to novelty effects.

However, we are surprised by Tan Sri Lim’s announcement of adding 1,300 hotel rooms where it has expanded from initial plan of 700 rooms. We believe capex for the project would have ballooned as well to RM390-520m from RM200- 300m initially. Nevertheless, this is still positive to the group given its high occupancy rate of 95%.

Stripping off the capex of these two projects, the balance of ~RM2bn could be used for refurbishment works to its casino and existing hotels.

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

We fine-tuned our numbers for FY13-15 to better reflect the lower entertainment revenue in FY14-15, which are sufficient to offset by the upgrade in net wins/VLT/day in RWNY to US$400 from US$377.

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

Post-earnings revision and rolling forward our valuations to FY14, we upgrade our TP by 3.7% to RM4.25 from RM4.10 based on SOP. Maintain HOLD.

Source:Hong Leong Investment Bank Research- 29 Jul 2013