News

• Several online media reported that Resorts World Casino New York City has proposed to expand its business to build a 400-room hotel, 140k sf. convention complex, new retail outlets, 20k sf. spa, and additional 1,000 video–lottery machines.

• The US$400m expansion plan was outlined to the New York state Franchise Oversight Board (FOB) on 27 June and is expected to open in April 2019 if approvals from New York State Gaming Commission and FOB are obtained.

Comment

• We are generally positive that the proposed expansion would further enhance GenM’s market leading position (42.61% market share in 2015) among video gaming operators in the New York State, after having missed out on the bidding of commercial casino license last year.

• Using estimation parameter of US$450 net win per VLT/per day, additional gaming revenue of circa US$50m p.a. for can be generated from the additional 1000 machines. Together with the estimated non-gaming revenue of US$110m p.a. drawing from the assumption of US$500 rev/psf, total incremental revenue is about US$160 p.a.

• Applying an EBITDA margin of 15%, potential bottomline contribution is merely RM96m (~4% of GenM FY15’s EBITDA). Contribution will also be eroded with the expected larger earning base from GITP in coming years.

• Funding a US$400m project should not be a hurdle for the group given its strong cash generating business and its ability to raise debt. However, we are cautious on its overly aggressive capex commitment on several projects simultaneously, such as the plan of US$1bn Genting Massachusetts’s tribal casino (in the form of promissory notes), on top of GITP capex of RM10.4bn. Funding multiple huge projects would turn GenM into net debt position from a net cash position in the coming years which would then increase the risk.

• Besides, we are also aware on the execution risk and potential competitions in the crowded market within the state that possess 9 racinos (including RWNYC), 5 tribal casinos and the three commercial casino licenses being awarded end of last year.

Risks

• Regulatory risk; Weaker hold percentage;

• Pandemic breakouts; Appreciation of RM; and

• Cannibalization from Macau & Singapore;

Forecasts

• Unchanged with no income contribution projected into our model at current state.

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 RM4.48 based on SOP valuations.

Source: Hong Leong Investment Bank Research - 11 Jul 2016