KUALA LUMPUR: Genting Bhd
is allocating RM11bil or US$2.8bil over the next two-and-a-half years to three years for the Las Vegas Phase 1, according to CIMB Equities Research.
The research house said on Friday this was announced in a conference call with analysts where the funding would be at least 60% debt and no more than 40% via internal funds.
“We are not too excited about the Las Vegas project as 1) it is a no-growth market and 2) the Genting group has traditionally thrived in less competitive markets, like Malaysia, Singapore and New York.
“We maintain our Hold rating on Genting. Our target price remains unchanged (roll over to end-2017), still based on a 30% holding discount to our RNAV estimate of RM12.06. We advise investors to switch to Genting Malaysia instead for gaming exposure,” it said.
CIMB Research said in the nine months to Sept 30, 2016 that 37% of Genting’s earnings before interest, tax, depreciation and amortisation (EBITDA) came from Genting Malaysia, 42% from Genting Singapore (GENS), and 9% from Genting Plantations.
It added that 3Q16 saw a reversal of RM195mil in previously recognised impairment losses for its UK casino operations. The Genting group conducts impairment tests on its global assets annually during 3Q.
It also said the key feature of Genting Singapore’s 3Q16 results were 1) higher rolling win rate; 2) reduction in expenses due to cost efficiency initiatives implemented in 2Q and 3) lower bad debt charges.
Strategically, Genting Singapore’s has planned several property enhancement projects in 2017 to rebrand and reposition Resorts World Sentosa into a premium lifestyle destination and better target the premium mass market. This could boost yields and margins, if successful.
However, CIMB Research lowered Genting’s FY17-18F EPS by 4% after accounting for 1) cut in Genting Malaysia’s FY17-18F EPS by 2% and 2) mitigated by a rise in Genting Singapore’s FY17-18F EPS of 7-15%.
“A potential upside risk to our Hold rating includes high market share gains at Genting Singapore. Possible downside risks to our rating are further delays in the opening of the 20th Century Fox theme park and major selldown in Genting shares by foreigners due to the uncertainties surrounding the ringgit.
“Genting’s share price performance will remain largely a reflection of foreign institutional investors’ flows. Fundamentally, investors are likely to adopt a wait-and-see attitude until Las Vegas opens in 2019,” it said.
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