PETALING JAYA: Genting Bhd is on track to establish itself as a global leader in the gaming and leisure industry, with the opening of Resorts World Las Vegas (RWLV) (pic) in the United States next month.
RWLV could offer attractive long-term growth prospects for Genting.
However, recouping its investments in RWLV will likely be slow because of Las Vegas’ intensely competitive landscape and the lingering effects of Covid-19.
According to UOB Kay Hian Research, RWLV would incur losses in its first two years of operations before turning modestly profitable in its third year.
“With the lingering uncertainties of the Covid-19 pandemic, we expect RWLV to initially operate at 40%-50% capacity – we expect RWLV to achieve optimal capacity of 85%-90% from 2024 onwards, ” the brokerage said.
It noted that Las Vegas’ visitor volume in the first quarter of 2021 was only at five million, down 51% from the pre-pandemic level in 2019. Nevertheless, the wide vaccination rollout has started to lift domestic visitors, and this would eventually usher in foreign visitors in 2022, it explained.
UOB Kay Hian estimated a potential annual earnings before interest, tax, depreciation and amortisation (ebitda) of about US$399mil (RM1.65bil) for RWLV upon achieving an optimal utilisation rate of 85%-90%.
This would indicate a potential payback period of more than 10 years and a net present value enhancement of US$1bil (RM4.13bil), it said.
UOB Kay Hian has maintained a “buy” call on Genting. It has raised its sum-of-parts-based target price for Genting to RM6.73 from RM5.84 previously. The new target price implies a 10 times estimated enterprise-value-to-ebitda for 2021, and 0.7 times the estimated price-to-book value for 2021.
The US$4.3bil (RM17.74bil) RWLV, which sits on a site which Genting acquired for US$350mil (RM1.44bil) on the north strip in Las Vegas, was initially targeted to be opened in 2016, but was delayed several times due to design changes.
In December 2018, the progress was further hampered when Wynn Resorts filed a federal trademark infringement lawsuit alleging similarities between RWLV with its Wynn/Encore properties.
Genting and Wynn later reached a settlement agreement on Jan 19, and RWLV is scheduled to open in June 2021.
Despite its long payback period assessment, UOB Kay Hian Research said RWLV would eventually thrive in the Las Vegas Strip, which is the second-largest gambling capital of the world.
It noted that Las Vegas Strip’s total revenue – prior to the impact of Covid-19 in 2020 – had been growing at a steady 10-year compounded annual growth rate of 1.3% to US$6.6bil (RM27.23bil) in 2019.
UOB Kay Hian said integrated-resort stock prices generally trended higher towards the opening of a major property during normal times. Hence, it said, Genting shares could moderately trend up towards the opening of RWLV in June, but the share price could soften thereafter, unless there was an unlikely scenario of RWLV delivering strong results.