Genting Malaysia identifies areas for cost cutting

According to UOB Kay Hian Research, the increased interest in the stock in recent weeks could be related to speculation that the group had reached a compromise with 20th Century Fox, paving the way for the opening of its outdoor theme park.

PETALING JAYA: Genting Malaysia Bhd has identified various steps to help it cut some costs in the face of the new gambling taxes, UOB Kay Hian Research said.

The research house said the company wanted to defend its margins from these taxes.

Some of the steps that have been planned include to have a more prudent way to give incentives and promotions to its members.

According to UOB Kay Hian, the company is also targeting to reduce exposure in the high-end VIP market as it only provides thin margins. “It will also control payroll and number of staff until the opening date of its outdoor theme park is set,” the research house said in a report.

It noted that Genting Malaysia’s visitor arrivals had seen a rise of late after its indoor theme park opened in early Dec 2018.

“We understand that Dec 2018 had the best tourist visitations for the December month.

“For the indoor theme park, 13 rides are operating now and the remaining nine rides are targeted to be ready for operation in early February to catch the Chinese New Year crowd,” it said.

On its dispute with the 21st Century Fox Group and Walt Disney Co, UOB Kay Hian said the company might opt to settle it out of court with them.

“For the moment, Genting Malaysia does maintenance work on the theme park property, which includes running the rides to avoid malfunction due to the rides being idle for too long. “Genting Malaysia would incur a cost of about RM15mil per quarter (about 3%-4% of total pre-tax profits) for maintenance works, before the theme park starts operating for business,” it said.

UOB Kay Hian has maintained its “hold” call on Genting Malaysia with a target price of RM3.30.

Meanwhile, Maybank Investment Bank Research (Maybank IB) said that this year, Genting Malaysia would have to deal with a series of unfortunate events that had transpired in 2018 such as casino duty rate hikes, fall out with 21st Century Fox, impairment of Mashpee Wampanoag investment and corporate tax rate hike.

Maybank IB said it has accounted for these events and is maintaining its earnings estimates with a “hold” call and a target price of RM3.30 based on a 10% discount to the sum-of-parts per share.

“That said, there could be upside potential if Genting Malaysia opens its outdoor theme park soon and is able to write back its investment in Mashpee Wampanoag,” it noted.