Journey to Wealth
Genting Malaysia - Negotiations over NY project fail BUY
- Bloomberg quoted New York Governor, Andrew Cuomo as saying that discussions with Genting Group for the development of the US$4bil convention centre in New York City, have failed. Recall that the convention centre would have been an extension of 'Resorts World New York' (RWNY).
- The failed negotiations mean that Genting Malaysia Bhd (GenM) will no longer have exclusivity over the project. GenM will have to bid for the project with other casino companies in the future. Cumo said that he plans to open up a bidding process in FY13F after lawmakers allow a constitutional amendment that would allow casinos in New York.
- According to a Genting spokesman, uncertainties and difficulties regarding the constitutional amendment, competitive landscape, tax rate and infrastructure support, made any decision difficult.
- We reckon that it would have been challenging for GenM to build a convention centre if the tax rates were not lowered or if there were no exclusivity to the project.
- Currently, RWNY pays 70% of its gross revenue in the form of taxes and other contribution to various agencies in the state of New York. Without a reduction in the tax rate, it would have not been possible for the convention centre to be profitable.
- With the convention centre cum casino project now open to a bidding process, GenM would be able to come up with a more cost-efficient design, which accommodates the current effective tax payments. This means that the convention centre cum casino could cost less than US$4bil.
- We believe that the state of New York is still open to the idea of casinos. We reckon that the legislative process would be completed by November 2013. Any bidding process would be held after that. Construction of the project, if any, would start in FY14F.
- After New York, the next agenda would be the legislative sitting in Florida. Lawmakers are expected to start debating on the liberalisation of the casino industry again from January to March 2013.
- GenM's share price is expected to react negatively to the above development in New York. Nevertheless, we reckon that the group's fundamentals are still intact and as such, we are keeping GenM as a BUY.
Source: AmeSecurities
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This book is the result of the author's many years of experience and observation throughout his 26 years in the stockbroking industry. It was written for general public to learn to invest based on facts and not on fantasies or hearsay....
