Highlights

We studied the details mentioned on the gaming bill (which proposed up to 7 full-scale casinos in NY) following the approval of the constitutional amendment that requires 4 destination gaming resorts in Upstate NY to boost tourism and economic development in the region.

We believe the latest legislation have addressed issues like minimum gambling age of 21, smoking is prohibited in indoor areas, limitation on financial access and exclusions of certain persons to the casino. As to the existing tribal casinos in NY, they remain exclusive with assurance of no destination gaming resorts to be developed within the same county.

The 3 regions authorized for destination gaming resorts are the Hudson Valley-Catskill area (region 1), the Capital District-Saratoga area (region 2), and the Eastern Southern Tier (region 5).

There would be a 7-year exclusivity period with no further destination gaming resort licenses. Thereafter, up to 3 more casinos could potentially be located in Downstate New York.

However according to the bill, no destination gaming resort shall be authorized in Zone 1, Region 2 (Figure 1), which we opined that RWNY will be the only racino in Queens.

Despite the approval, it is still uncertain of whether GenM would participate in the bidding for casino license given that:

1) GenM have always been interested in expanding RWNY (Downstate), which eventually would include live table games; and

2) unattractive locations with lesser population in Upstate compared to Downstate NY.

In our view, GenM may not be interested in Upstate NY although gaming tax imposed on casinos in Upstate appears to be more attractive (37-45% on slot machines and 10% on table games) vs. hefty gaming tax on NY racinos at an average of 67%.

Besides, we believe the financial impact to GenM would be insignificant should the group develop a destination gaming resort in Upstate. RWNY currently contributed approx. 8- 11% to group’s EBITDA.

Risks

1) Regulatory risk; 2) Weaker hold percentage; 3) Pandemic breakouts; 4) Cannibalization from Macau & Singapore; 5) Appreciation of RM and 6) Bill on full gaming operations in New York not approved.

Forecasts

Unchanged.

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 call on GenM with unchanged TP of RM4.28 based on SOP valuations.

Source: Hong Leong Investment Bank Research - 8 Nov 2013