Genting Malaysia expected Resorts World Genting (RWG) to record 30 million visitors annually by 2020, due to the anticipated rise in gaming capacity from the company
KUALA LUMPUR: CIMB Equities Research believes that starting next year, Genting Malaysia will see a long-awaited multi-year re-rating process when the Genting Integrated Tourism Plan (GITP) comes onstream and starts to mature.
“We now value Genting Malaysia’s Malaysian earnings at 9.0 times EV/EBITDA and if this re-rates over time to the regional average of 10.5 times by FY18.
“Genting Malaysia could reach RM7.20 (63% upside) by then. Using similar assumptions, by 2020, Genting Malaysia’s target price could reach RM8.05 (82% upside),” it pointed out on Tuesday.
CIMB Research said it organised a meeting with Genting Malaysia’s management and eight fund managers. The meeting yielded both positive and negative surprises
The negative surprise was the 20th Century Fox theme park opening has been delayed until 2017, a negative development.
However, the new shopping mall/podium and additional gaming capacity will come onstream from 2H16 onwards (versus late-2016). However, this positive is likely to be mitigated by pre-operating expenses.
“We were positively surprised to learn that the recent haze and GST have not had any negative repercussions on gaming volumes in Genting Highlands.
“Negative consumer sentiment has also not hurt gaming volumes, in line with Genting Malaysia’s experience in past economic cycles. This is a testament to Genting Malaysia’s economic moat. It is a defensive casino monopoly domestically.
“In fact, although the GITP is not yet complete, visitation trends are positive given a low base and weak ringgit,” it said.
CIMB Research cut the 2016 EPS but raised 2017 to 2018 EPS
It imputed RM200mil in pre-operating expenses, mitigating the positive impact of new gaming tables in 2016 (assuming an average of 50 new tables) to account for management’s guidance of flat to marginal EPS growth.
“We roll over our EBITDA assumption to 2017F, which raises our RNAV-based target price to RM5.93.
“Genting Malaysia is preserving its marketing dollars for an aggressive push only when the new gaming capacity is ready. At present, it is focusing on customer retention efforts by increasing marketing spend on existing core customers via room and toll rebates and gaming promotions in conjunction with its 50th anniversary celebration,” it said.
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