GENM has settled the lawsuit with Fox, which is highly positive, fully resolving their disputes and dismissing all claims and counterclaims. More importantly, GENM is allowed to use certain Fox’s Intellectual Properties, which means less dismantling cost while construction work can resume soon, quickening its opening. As such, it is a huge price booster for GENM. We maintain OUTPERFORM on the stock with a revised target price of RM4.30.

Lawsuit with Fox settled. Yesterday, GENM announced that it and the defendants, namely 21st Century Fox and Walt Disney, have entered into a settlement fully resolving their disputes against each other and agreeing to dismiss all claims and counterclaims between both parties in the pending legal action in the US District Court for the Central District of California. To recap, GENM filed a USD1b claim in last November against the defendants for the latter’s cancellation of 20th Century Fox World theme park at Genting Highlands while the defendants also filed a counterclaim of USD46.5m against GENM in January.

Dismiss all claims and GENM allowed to use certain Fox’s IP. This definitely is great news as both parties have entered into a restated MoA granting GENM a license to use certain Fox’s intellectual properties. (IP) This will allow GENM to proceed without dismantling all Fox-related IP which will quicken the opening of the theme park that has already been delayed for more than a year. GENM had invested USD750m in the theme park prior to the cancellation. That mean with this settlement, GENM does not need to write down the entire invested cost.

Theme Park to open soon? In our opinion, GENM is unlikely to look for another partner for the theme park as Fox will not allow another theme park operator to use their IP. With its past experience prior to this failed partnership, GENM had been on its own, as it also selfoperated the old theme park. Meanwhile, GENM said that it is currently updating its development and construction plans to complete the outdoor theme park utilising both Fox and non-Fox IP. The outdoor theme park shall also be renamed. With this latest turn of event, the long-anticipated theme park should be ready in 12 to 18 months.

It is back on track. With the Fox lawsuit settlement, the withdrawal of the application of judicial review of a decision by MoF pertaining to tax incentive for GITP and the 1Q19 results which reflected that the impact of 10% casino duties hike was better than expected, there is no more negative outstanding issues for GENM. In our earnings assumption, we have yet to factor any earnings contributions from the outdoor theme park, but we expected USD750m impairment in our valuation. As such, with this news, assuming a USD50m dismantling cost for certain Foxrelated IP, which are not permitted in the settlement, it will add back RM0.50/SoP share to our target price.

Raise TP to RM4.30; OP reiterated. While there is no changes in our earnings estimates, we upgraded our target price to RM4.30 from RM3.80 after adding back RM0.50 as mentioned above. This implies FY20E PER of 17.5x which is in-line with its 3-year mean PER of 17.7x. We expect this news to act as a price catalyst, and thus maintain our OUTPERFORM rating. Risks to our call include poor luck factor and lacklustre business volume.

Source: Kenanga Research - 26 Jul 2019