News

New York panel have started seeking casino applications and it is purported that the potential amount of fees needed to pay for a casino license would vary, ranging between US$20m- US$70m.

All applications from interested bidders would need to be submitted by 30 June and selections will be made and announced by early-fall (expected to be in Sept or early-Oct).

Over in Florida, the legislative plan to broaden gambling in the state was withdrawn once again for 2014 and is said to be reviving the effort again next year (2015).

Furthermore, regulators announced that the gaming license owned by Gulfstream Park may not be moved from Broward to Miami-Dade country.

Comments

We understand that the different rates in casino licenses are depending on the location of where the casino would be located (casinos located nearer to New York City would be more expensive).

Despite the higher rate, we believe it will be more sensible for casino operators to opt for these locations (Dutchess and Orange County) for its larger potential customers/punters.

The withdrawal of the gaming bill in Florida was a negative surprise as we were earlier expecting more news flow to come through this year. However, we have not imputed any potential earnings assumption from Genting’s venture there.

Given that the JV between GenM and Gulfstream Park will not be able to operate a slot machine casino in the former’s Omni Center property, we believe the plan is now put on hold.

All in all, we are now turning neutral on Florida’s gaming developments while remain positive on the development in New York’s gaming industry.

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 & South Korea).

Risks

• Hike in gaming tax.
• Disappointment on the legalization of full-scale gaming casino in 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 - 8 Apr 2014