News

Last Friday, GENM announced that the group is participating as the manager of First Light Resort & Casino, a gaming resort to be constructed by the Indian Mashpee Wampanoag Tribe in Taunton, Massachusetts, USA.

The appointment of the group as the manager of the resort which is currently pending approval from the National Indian Gaming Commission is expected to be for a period of 7 years commencing from the opening of the property.

GENM does not have any equity interest in the project but have to date invested USD249.5m in interest bearing promissory notes issued by the Mashpee Wampanoag Tribal Gaming Authority for the initial development phase of the project.

Comments

Although we are neutral on this development as being the manager of the casino property may not seem to be value enhancing as compared to have an equity share, this latest development shows the group’s persistence in expanding its presence to the US market after several failed attempts previously. Should the appointment is approved by the authority, it will mark its third presence in the US market after New York and Florida.

Ground breaking for the project will be this month, targeting to open for business by the summer of 2017. The 900-room resort casino will be opened in phases, includes casino floor featuring 3,000 slots, 150 gaming tables and 40 poker tables, a 300-room luxury hotel, a 300-room mid-range hotel as well as a 300-room family hotel consisting of 25,000 square feet indoor/outdoor water park. It also includes 10 retail shopping destinations.

Outlook

It is too early to gauge the earnings contributions from First Light to the group which we expect to be immaterial given its role as a property manager beside the size of the casino floor. Back home, the RM10.38b 10-year refurbishment program will be a structural change to its home turf operations and acts as an earnings catalyst from 2018 onwards. The theme park is to be ready by end-2017. 

Operational-wise, the yield management initiative should help to improve earnings while the RWNYC numbers should be sustainable. Resort World Bimini’s new 300-room luxury hotel is expected to reduce its operating loss and break even in 1H16. However, the UK operations could continue to see tougher times due to its VIP-centric nature while the Resort World Birmingham may need more time before showing meaningful results. Changes To Forecasts

No changes to FY16-FY17 estimates.

Rating

Maintain UNDERPERFORM

Valuation

Price target is maintained at RM4.26/SoP share.

Risks to Our Call

Strong earnings across all casino operations.

Source: Kenanga Research - 4 Apr 2016