News

StarBizWeek has reported that, according to sources, the Genting group may be close to securing a casino venture in Sri Lanka.

This comes after the Sri Lankan government approves the development of 3 integrated resorts, one of them to Australian casino mogul, James Packer, who controls Crown Ltd.

Comments

We are positively surprised by the news reported, given that the group have always been eyeing for any opportunities outside its current foothold (Malaysia, Singapore, Hong Kong, Philippines, United Kingdom and United States of America).

However, it is not a 100% surprise as Genting group is said to have interest in Sri Lanka long before since 2010 when the Sri Lankan government legalized gambling.

Furthermore, the Sri Lankan government have proposed to reduce taxes on casinos to only 5% (vs. 15% currently), which makes the gaming industry more attractive.

There were not much disclosures given as to which of its subsidiaries would be participating in this venture, hence we do not dismiss any possibilities that GenM or GenS would be interested.

It is likely that the group will be partnering with a local player who already owns a casino license. To add on, any potential casino to be built would be at a much smaller scale, likely similar to the existing casinos in the country. Hence, we do not think the group would have any difficulties in financing this venture, which would potentially cost US$300-400m.

Currently, there are 2 cities (Colombo and Kollupitiya) with gaming facilities in Sri Lanka which have 9 casinos and 29 table games in total. The largest casino is The Ritz Club with 16 table games.

Catalysts

• Higher-than-expected visitors’ arrival into Malaysia.
• GenM’s UK development completed earlier-than-expected.
• License to develop full-scale casino granted by New York’s and Florida’s legislators.
• GenS to penetrate into international markets (Japan).

Risks

• Hike in gaming tax.
• Disappointment on the legalization of full-scale gaming casino in both New York and Florida.
• Failure in casino license renewal in Malaysia and Singapore.

Rating

OVERWEIGHT

Positives – (1) Defensive and monopoly industry.

Negatives – (1) Highly regulated industry; and (2) Earnings highly dependable on luck factor.

Valuation

We remain OVERWEIGHT on the sector:

GenT – We maintain BUY with unchanged TP of RM12.14 based on SOP valuations.

GenS – Maintain BUY, with unchanged TP of SG$1.67 based on 9.5x FY15 EV/EBITDA multiple.

GenM – Maintain HOLD with unchanged TP of RM4.49 based on SOP valuations.

Source: Hong Leong Investment Bank Research - 10 Mar 2014