News

Financial Daily has reported that Genting Malaysia (GenM) is seeking regulatory approval to open a 2,000 slot-machineonly casino at the property housing Resorts World Miami (RWM), by riding on a permit held by Gulfstream racetrack.

Current law in the state requires casinos to be located at racetracks, coupled with a racing permit, in which GenM currently does not own.

Highlights

We were neutrally surprised by this announcement given that GenM always have the intention to build a full-fledge casino in Florida, and have been trying to get the legislation approved since 2 years ago.

However, it is uncertain whether the proposal would pass without changes to the state’s gambling laws as the Florida Division of Pari-Mutuel Wagering, which issues permits, said that the permit issued to Gulfstream was for Broward County, not Miami-Dade County, which is where the casino is planned.

The proposed plan will be similar to what GenM owns in New York, Resorts World New York, where it operates slot machines that have been successful and doing well.

According to Miami Herald, should the proposal is approved, the proceeds of the casino will go to “a non-profit company to benefit the other partners such as Florida horse breeders, owners and trainers”. GenM and Gulfstream would only keep some of the revenue as “administrative fess”.

We believe the move taken is a starting point for GenM to introduce gaming to the county and would continue to lobby for the approval to run a full-fledge casino. For now, GenM has presence in the state through its Resorts World Bimini (RWB), which is 50 miles off South Florida coast.

Risks

• Regulatory risk;
• Weaker hold percentage;
• Pandemic breakouts;
• Cannibalization from Macau & Singapore;
• Appreciation of RM and
• 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 and potential sources 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- 9 Jan 2014