There are several developments in the US at the moment, which we believe could possibly end up favourably and improve investor sentiment on Genting Malaysia (GENM). In case of a favourable outcome, GENM could post net gains of more than RM1.8bn. However, as these issues involve state and federal politics in the US, the outcome is hard to predict. We reiterate our BUY call, with an unchanged TP of RM 3.80.

Potential Reversal of the RM1.8bn Write-off

In the 3Q18 results, Genting Malaysia had written off RM1.8bn investment in Mashpee notes, as the court ruled that the tribe did not meet the requirement stated in the 1934 Indian Reorganization Act, which limits the US Interior Department on holding the land in trust for the tribe. The tribe had previously planned to build a casino on the contested land. However, the House Committee on Natural Resources is now chairing a legislative hearing on a bill that could reverse the court decision. Nevertheless, the Senate has yet to reintroduce a similar bill for consideration.

New Opportunities in New York and Florida?

We believe that there could be new opportunities in the state of New York and Florida for GENM to participate. In New York, GENM’s Resort World Casino New York (RWNY) could play a role in the USD10bn sports betting market, depending on the outcome of S1490. In Florida, the state is negotiating with the Seminole Tribe on their “exclusive” rights to offer banked card games in the state, which contributed USD350m/yr to the state. The state could expand gaming if the negotiation falls through to fill the budget gap, potentially benefiting GENM, in our view.

Reiterate BUY, With An Unchanged TP of RM3.80

While it is hard to predict the outcome of these events, we believe that any favorable outcome to GENM would help improve investor sentiment on the stock, which has been affected by negative news flow since late 2018. We reiterate our BUY call with an unchanged SOTP- based TP of RM3.80. GENM is also our preferred pick in the gaming sector.

Source: Affin Hwang Research - 17 Apr 2019