Highlights

GenM launched the Twentieth Century Fox World (TCFW) and Genting Integrated Tourism Plan (GITP) yesterday at Genting Highlands, officiated by Dato’ Sri Najib Razak.

Key Point #1: GenM is investing RM1bn on TCFW with targeted completion in 2016. The development will feature more than 25 rides and attractions with a cinematic feature on a 25 acres piece of land.

Separately, the group has entered into a MoU with East Coast Economic Region Development Council (ECERDC) to embark on a major 10-year master plan for the redevelopment of Resorts World Genting (RWG).

Since the introduction of TCFW, we have earlier imputed the potential impact from the closure of its outdoor theme park in FY14-15. Post-completion of TCFW in FY16, GenM will see strong growth (novelty effects) and entertainment revenue is foreseen to return to its historical growth thereafter.

Key Point #2: GITP’s phase 1 will be allocated RM4bn for the development of new hotel properties, infrastructures and amenities. In addition, GenM will also be constructing a multi-storey carpark with >3,000 parking spots and additional bus spaces. Furthermore, new cable car station will be built mid-hill with the capacity of 100 gondolas.

Such initiatives in adding more hotel rooms and improving accessibility to the resort would further complement the group’s initiative to expand its outdoor theme park.

Key Point #3: GenM is in discussion with Simon Property Group to target the opening of the second premium outlet center (known as Genting Premium Outlet, GPO) in the highlands in 2015.

The positive surprise would attract shoppers from city centers, especially the Klang Valley given the it is just an hour drive away from the highlands, boosting GenM’s F&B and retail revenues.

All in all, we are pleased with GenM’s overall expansion plans in the next few years as it covers almost all of the group’s division. Although nothing was mentioned on GenM’s gaming division, we believe that it is included in one of the phases in GITP.

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

Despite having a HOLD call with unchanged SOP-derived TP of RM4.28, we see potential upside to our TP upon rolling forward our valuations to FY15 sometime next month.

Source: Hong Leong Investment Bank Research - 18 Dec 2013