Highlights

Genting Group have announced that it has acquired a land parcel of 87-acre (3.79m sq ft) from Boyd Gaming Corp for US$350m (RM1.1bn).

Resorts World Las Vegas (RWLV) will be a world-class destination resort with 3,500 rooms in the first phase, as well as 175,000 sq ft of total gaming space across, and several luxury dining and retail amenities.

Comment

This came as a surprise to us as we were not expecting Genting group to develop another destination resort in the country this soon. However, we are neutral as we are unsure of the gaming market there, despite discounted land acquisition price. The Strip’s gaming revenue have been flattish since ’09.

As for the value purchased, we opined that the amount of US$350m is fair, as the land price of US$4m/acre was sold at a discount to the average price of ~US$4.5m (or ~11% discount) in Las Vegas. The project sits along the northern part of the Las Vegas Strip, near Wynn Resorts Ltd’s properties, was untouched since 2008, when construction was abruptly halted due to economic condition, and was suspended due to Boyd’s falling profits in 2009.

Given Boyd’s initial plan was to spend US$4bn for its casino development back in 2008, we opined that GenT could potentially be spending approx. that amount as well.

The mentioned development is deemed to be fresh as no detailed information were disclosed. However, we made some assumptions based on the Resort World Singapore (RWS). If GenT were to have similar gaming tables arrangements, RWLV could potentially have ~600 gaming tables. However, this number may vary as Asian prefers to play on table games whereas Americans prefer to place their bets on slot machines.

The destination resort is slated to have its ground-breaking sometime next year, with the opening of phase one planned for 2015. Given such timeline and our total costs assumption, GenT would be investing approx. US$1.3bn/year (RM4.1bn/year). This investment could still maintain GenT’s net cash position.

Risks

1) Regulatory risk; 2) Weaker hold percentage; 3) Pandemic breakouts; 4) Appreciation of RM; 5) Higherthan- expected cannibalisation from Marina Bay Sands (MBS) and Macau casinos; 6) Annual renewal on RWS’s junket license.

Forecasts

Unchanged.

Rating

BUY, TP: RM10.55

• Positives – (1) Defensive stock; and (2) New sources of earnings from international markets to drive earnings growth.
• Negatives – (1) Highly regulated industry; and (2) Leisure and hospitality’s earnings highly dependable on luck factor and hold percentage.

Valuation

• Maintain BUY with TP of RM10.55 based on SOP valuations.

Source: Hong Leong Investment Bank Research - 05 Mar 2013