Resort's casino still attractive despite SARS


  • Business
  • Friday, 25 Apr 2003

RESORTS World Bhd's casino business remains fundamentally attractive despite the Severe Acute Respiratory Syndrome (SARs) outbreak, said Standard & Poor’s Equity Research Department (S&P). 

In a statement yesterday, S&P said it had, however, downgraded its call on Resorts World from Buy to Accumulate as risks on its cruise associate rose following the spread of the SARS virus. 

The leading independent equity research provider said the SARS fallout was taking a toll on 35%-owned Star Cruises, raising near-term earnings risk for Resorts World. 

Factoring in two quarters of SARS impact, S&P has cut its forecasts for the stock by 38% and 10% for financial year end (FY) 2003 and 2004 respectively. 

Earnings will be hit with lower contribution from 35% associate Star Cruises and lower visitor arrivals to the casino, but local visitors to the casino, which accounts for an estimated 60% of total arrivals, should remain resilient. 

This is because the Star Pisces, a cruise ship in Hong Kong with a high gambling content, saw only a 15% to 20% decline in passengers despite being in the heart of the outbreak. 

S&P has reduced its target price for Resorts World from RM11.60 to RM10.00 due to the cut in its earnings forecasts, a higher discount rate and a lower valuation for Star Cruises. 

Though Star Cruises has sufficient resources to tide it over based on S&P's six-month SARS impact scenario, the risk that restrictions on its debt covenants will be triggered and, or that a cash call will be required, will rise if SARS persists. 

The uncertainties will limit Resorts World's near term out-performance until a clearer picture emerges on the SARS front. – Bernama 


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