Highlights

GenM’s Awana Skyway in Genting Highlands, that connects three stations – Awana, Chin Swee and the highlands, have ceased its operations recently to make way for the construction of a new cable car system.

The new cable car system is said to have 106 gondolas which covers 2.8km. It would have the ability to transport up to 2,000 passengers per hour from Sri Layang/Awana to the highlands.

The construction of the new cable car is part of GenM.s RM5bn GITP (Genting Integrated Tourism Plan) that was announced in Dec 2013. To recap, GenM announced that it would be constructing a new upper cable car in effort to improve its accessibility to the resort. The construction is expected to complete and open in 2016.

We believe the completion date would fall within the same time frame as the completion of its newly constructed outdoor theme park, Twentieth Century Fox World.

Going forward, we are expecting more newsflow on GenM’s GITP efforts. Amongst others that were announced were the development of new hotel (3-star hotel with circa 1,300 rooms), upgrades on its show area (with seating capacity of 10,000 people), construction of new multi-storey carpark as well as an additional bus space.

Although we do not expect any impactful boost to GenM’s earnings from these numerous projects, we remain positive on the group’s long-term prospects as it would further attract more tourists/visitors into the resort post-expansion.

Furthermore, we believe there would be some flow over from the additional visitors to the new outdoor theme park to its casino. Should this happen, the additional punters could be GenM’s re-rating catalyst going forward as gaming alone contributes more than 80% of GenM’s EBITDA.

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 RM4.49 based on SOP valuations.

Source: Hong Leong Investment Bank Research - 11 Apr 2014