News    Genting Malaysia Bhd (“GENM”) signed a MoA with Twentieth Century Fox last Friday in a RM400m tie-up to transform the Genting Highlands theme park to a brand new world-class theme park, the first international Twentieth Century Theme Park in the world. 

The theme park will be closed from 1 Sep-13 to facilitate the project and the brand new theme park is scheduled to be reopened in 2016. The revamped theme park will feature rides and attractions based on Fox’s blockbusters such as Ice Age, Rio, Alien vs Predator and Night at the Museum.

Comments    This is part of GENM’s 5-year refurbishment program costing RM3b at the hilltop resort and is its first major investment in Malaysia after many years of investing abroad. Being in the “political-sensitive” gaming industry in Malaysia, this commitment will enhance its position with the casino licensing authorities in renewing its licence.  

We are positive on this project. Although new theme parks are aplenty in the region such as Legoland and Puteri Habour Family Theme Park in Malaysia and the Universal Studios Singapore (USS) which is just across the causeway, the Twentieth Century Theme Park has the advantage of cool highland climate. We believe this will be a major pull factor for visitors from the warmer Southeast Asia region. 

The new theme park should be able to boost the theme park revenue where its current contribution is estimated at 2%-3% at RWG level. Current ticket price for adult/teen is only RM54/pax with 3m visitors a year.

Assuming a new average ticket price of RM100 with visitors doubling to 6m a year, the revamped theme park could quadruple its revenue in 2016. The assumption is conservative compared to Legoland’s ticket price of RM120 and USS at SGD96.

With its net cash of RM2.06b as at Mar-13, GENM has ample room to gear up to fund its RM3b 5-year refurbishment program. Furthermore, we expect its casino clientele profile to change with higher VIP segment from 35%-40% currently. 

Outlook    It is still too early to gauge the earnings impact to the group. 

GENM’s 2Q13 earnings should be seasonally weaker than 1Q13 as the latter quarter was boosted by the CNY festival.

Forecast    No changes to our FY13-FY15 estimates

Rating   Maintain OUTPERFORM

Valuation    Our price target is maintained at RM4.39/SOP share.

Risks     Unfavourable luck factor.

Source: Kenanga