GENM has settled the lawsuit with Fox, 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. BUY with a target price of RM4.30 premised on FY20E PER of 17.5x which is in-line with its 3-year mean PER of 17.7x.

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 USD1bn claim last November 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.

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). GENM had invested USD750m in the theme park prior to the cancellation.

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. Meanwhile, GENM said that it is currently updating its development and construction plans to complete the outdoor theme park utilising both Fox and nonFox 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.

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 the impact of 10% casino duties hike was better than expected. Going forward, the absence of any negative outstanding issues for GENM should be favourable 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 Fox related IP, which are not permitted in the settlement, it will add back RM0.50/SoP share to our target price.

Source: Rakuten Research - 26 Jul 2019