The Genting-Wynn dispute of trade dress infringement, trademark dilution and copyright infringement over the design of RWLV’s upcoming Resorts World Las Vegas hotel and casino resort property has now come to an amicable ending. The case is resolved with GenT’s initiatives on changing the property’s design with no settlement fee. We opine that there may additional cost on redesigning the property, however the magnitude of the additional cost has not been disclosed and is expected to be announced on a later date. We downgrade to HOLD with unchanged TP of RM7.12.

NEWSBREAK

Resort World Las Vegas (RWLV) and Wynn Resort jointly announced that both companies had reached a settlement agreement on a dispute involving trade dress and copyright infringement claims surrounding the design of the former’s upcoming Resorts World Las Vegas hotel and casino resort property.

HLIB’s VIEW:

Recapping past events. For the uninitiated, RWLV’s (100% owned by GenT) casino resort is slated for opening by 2020. It will include over 3,400 rooms in multiple hotels, a variety of restaurants, gaming space, retail shops and top-tier night life venue. The project has a total expected investment cost of USD4bn and thus far, the GenT has already invested USD2.7bn. To recap, above mentioned case was filled by Wynn Resorts Holdings against RWLV on 26th Dec 2018.

Design changes for RWLV. Management clarified that the case is resolved with no settlement fee and rather both parties came to a friendly term that RWLV will be making several changes to the design of the building that will clearly differentiate it from Wynn’s properties. While there could be additional cost of redesigning RWLV’s casino resort, we opine that this would not impact immediate earnings as the incremental cost is likely to be capitalised (i.e. capex of constructing the property). Nonetheless, upon completion of the casino resort, this could lead to higher depreciation and amortisation charges associated with the additional cost from the design changes. The magnitude of the additional cost was not disclosed but is expected to be announced at a later date.

Forecast. Unchanged as there is lacking of details regarding the additional design cost to model into our capex assumptions.

Downgrade to HOLD, TP unchanged at RM7.12. Since we upgraded GenT to Buy on 19 Dec 2018, share price has appreciated by 9%. As such, with the narrowed upside at current share price, we downgrade our rating from Buy to HOLD with unchanged SOP (50% discount) derived TP of RM7.12. While GenT’s FY19 EV/EBITDA is trading at 6.3x , still at a discount to its peers 10x, this comes on back of an earnings decline in FY19 following the negative impact from GenM (HOLD, TP: RM3.23) resulting from (i) casino duty increase and (ii) delay in the outdoor theme park opening.

Source: Hong Leong Investment Bank Research - 30 Jan 2019