We remain optimistic about our investment thesis for Genting Malaysia (GENM) post our recent visit to the Highlands, as we believe GENM should be able to get the outdoor theme park operational by 2020. Indeed, there could even be upside risk to our forecast, if GENM is able to secure a partner to rebrand the theme park and open the theme park earlier than expected. Reiterate BUY with an unchanged TP of RM3.80.

An Outdoor Theme Park to Boost Visitation by 8-10%

We believe that the outdoor theme park in Highlands can deliver an additional 2.0-2.5m visitations per year, adding on to the 25m visitations Highlands received in 2017. Although the spending per visitation generated through the theme park might not be as high as the current spending, we believe it will help to complement the Highlands’ current offering as a family-friendly holiday destination. The outdoor theme park could also help to increase the overall spending of the younger crowd, who prefer spending more on the non-gaming-related activities in the Highlands.

Operational by 2020 Should Not be a Problem

Based on our observations post our recent visit, major works for the theme park seem to be completed. GENM should be able to complete the rides without help from other parties (or brand owners), as the intellectual property of the rides belongs to GENM. A recent interview with GENM’s chairman suggested that the theme park could be ready and open by early 2019. However, we believe GENM would want to keep its options open for some time, before deciding on whether to go ahead with the project without the partnership of a named operator.

Reiterate BUY With An Unchanged TP of RM3.80

We reiterate our BUY rating while maintaining our SOTP-based 12-month TP of RM3.80 unchanged, as we believe that any current downside has been fully priced in. We and the consensus are already expecting earnings to contract by c.30% in 2019 from 2018, due to the increase in the gaming tax and the delay in the opening of the theme park. In addition, there is still risk of a delay, if Fox/Disney files an injunction to stop the progress of the theme park.

Source: Affin Hwang Research - 7 Jan 2019