News

• GenM announced its participation as the manager of First Light Resort & Casino (FLRC), an Indian destination gaming resort to be constructed by the Mashpee Wampanoag Tribe (“Tribe”) in Taunton, Massachusetts .

• The appointment is currently pending the approval from the National Indian Gaming Commission and is expected to be for a period of 7 years commencing from the opening date.

• GenM Group has to-date invested US$249.5 million in interest bearing promissory notes issued by the Mashpee Wampanoag Tribal Gaming Authority for the initial development phase of the project with no equity interest.

• Genting Massachusetts LLC will operate the US$1bn casino & resort featuring 150,000 sq. ft. gaming floor with 3,000 slots machines, 150 gaming tables, a dedicated poker room with 40 tables on behalf of the tribe while helping to build up the capacity of the tribe to operate it themselves with ground breaking scheduled for April 5 and the construction will take place in four phases. (details in page 2)

Comment

• We are generally positive that the casino would help to boost GenM presence in the U.S. when it commences its operation in mid-FY17. However, its earnings contribution is uncertain as GenM’s investment is in the form of interest bearing promissory notes without equity interest.

• Using conservative estimation parameters, we estimate gaming revenue of circa US$440m/yr for FLRC. With EBITDA margin of 15%, bottomline contribution is circa RM250m (~11% of GenM FY15’s EBITDA).

• On the flip side, the group may need to raise additional debt to fund the estimated capex of RM1.9bn (assuming the first phase capex of US$0.5bn to be funded by GenM), on top of the doubling of GITP capex of RM10.4bn (with RM8.11bn to be spent during 1st Phase). To note, its total debt has increased to RM4.6bn in FY15 from RM1.6bn in FY14.

• Despite the potential catalyst from the Massachusetts casino, we maintain our cautious stance on the contribution to GenM. Besides, we are also aware on the execution risk and potential competition from a potential rival casino (Brockton) being awarded license (to be announced in 29 April 2016) in the same region with just 20 miles apart.

Risks

• Regulatory risk; Weaker hold percentage;
• Pandemic breakouts; Appreciation of RM; and
• Cannibalization from Macau & Singapore;

Forecasts

• Unchanged.

Rating

HOLD

Positives

• (1) Defensive business; (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 with an unchanged TP of RM4.08 based on SOP valuations while pending for more clarity before we impute the contribution of the Massachusetts casino.

Source: Hong Leong Investment Bank Research - 4 Apr 2016