News

Various media sources have reported that Genting group has release the details of the resort casino earmarked for Orange County, New York.

The “Sterling Forest Resort” project, a 238-acre resort is proposed on the site of the Tuxedo Ridge Ski Center that will include a casino, two hotels, restaurants and facilities for year-round outdoor recreation, including skiing.

Genting Americas’ Senior VP Christian Goode also detailed plans for significant roadwork to prevent traffic, including private financing for the construction of the 15B interchange off the New York State Thruway, several roundabouts and the widening of Route 17A.

Comments

We can now confirmed that the group bidding for the casino license in Upstate New York is Genting Malaysia (GenM) as the bidder is Genting Americas, a wholly-owned subsidiary of GenM.

Geographically, among the other 4 bidded locations in the County, Tuxedo Ridge Ski Center is the nearest to Manhattan with a total distance of 41.2 miles or 66.3km vs. 52-68 miles or 83.7-109.4km for the others.

We opined that this could be slightly advantageous to GenM if the license is awarded given the better access to the crowd in Downstate New York.

Despite the disclosure, no price tag was announced on the proposed development. However, we believe it would not vary much from the price tag reveal by other bidders which ranges between US$400m-US$750m (RM1.3bn-RM2.5bn). Given GenM large warchest, strong cash flow and strong credibility, we opined that financing the project will not be a problem.

Nonetheless, no further information was disclosed on the future of the existing property (New York Renaissance Fair). We believe that it is likely for the property to continue operating, which would likely complement GenM’s recreational plans.

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 - 30 Apr 2014