GENTING Malaysia Bhd’s (GEM) share price has climbed to a record closing high of late as more tourists visit the hilltop casino resort. This is in sharp contrast to the downward trend of its sister company Genting Singapore Ltd’s share price which hit 6½ year’s low of 64.74 Singapore cents on Feb 11.
Anticipating a rising number of visitors, GEM will be adding more gaming tables and slot machines to cater for tourists from China and the return of Singaporeans.
The group is opening three floors for new gaming tables and slot machines in its new Sky Plaza, while its Sky Avenue — with nearly 600,000 sq ft of floor space — will have retail and international food and beverage brands, say industry sources.
It is understood that the new projects will open in stages next month.
When contacted, GEM confirms the additional capacity but declines to furnish details.
Gaming analysts and industry observers believe the recent upward trend of the stock is driven by expectation of the new openings at the Genting Highlands resort — the key earnings contributor to parent company Genting Bhd.
GEM’s share price hit a record closing high of RM4.91 on Oct 13. It then came off the peak to RM4.58 last Friday. Year to date, it has gained 11%.
Trading volumes on Oct 13 ballooned to 9.4 million shares — 129% higher than the one-year average trading volume of 4.1 million shares.
“The stock price has been rising partly due to the [imminent] opening of Genting Malaysia’s new projects. The GITP (Genting Integrated Tourism Plan) momentum is building up,” says UOB Kay Hian’s head of research Vincent Khoo, who tracks the gaming industry.
Maybank Investment Bank research in an Oct 31 report notes that the share prices of Macau and Southeast Asian gaming companies since 2009 had revealed an interesting trend — the prices rose before the opening of new properties.
“The only exceptions were Galaxy Macau 2, Broadway Macau and Studio City. To be fair, Macau gaming was in recession at the time, with 2015 Macau GGR [gross gaming revenue] plunging 34% year on year. Learning from history, we are confident that Genting Malaysia will appreciate in January 2017 once Sky Avenue and Sky Plaza open for business,” it says.
Maybank Investment Bank recently raised its target price for GEM by 19% to RM5.50.
A gaming analyst at a local bank, who declined to be named, says there is a noticeable presence of visitors from China at the resort recently.
Maybank Investment Bank believes the rising number of Chinese tourists to Resorts World Genting (RWG) may be just the beginning.
It estimates that Chinese tourists accounted for about 4% of Genting Highlands’ visitor arrivals of about 800,000 last year. The research house believes the numbers will grow rapidly.
“If the Golden Week (Oct 1 to 7) figures are anything to go by, the y-o-y growth (of Chinese visitors) appears to be accelerating. Therefore, we deem it possible that the number of Chinese visitors to the casino resort may breach the one-million mark this year. More importantly, they appear to be originating from the wealthier provinces of China,” it states in the Oct 31 report.
Meanwhile, UOB Kay Hian’s Khoo reveals that currently, about one in four Chinese tourists visit Genting Highlands during their trips to Malaysia, making up about 7% of the resort’s total number of hotel guests.
Statistics on Malaysia Tourism Promotion Board website shows tourist arrivals from China have been rising since the start of the year.
In the first two quarters of this year, tourist arrivals from China increased 35% y-o-y to 512,973 and 29% to 479,520 respectively.
The Ministry of Tourism and Culture expects the number of people travelling from China to Malaysia to hit two million this year, and possibly reaching as high as four million. Last year, 1.6 million people travelled from China to Malaysia.
Earlier this year, Malaysia waived the visa requirements for Chinese tourists who stay less than 15 days in the country from March 1 to Dec 31, 2016. Chinese visitors who want to stay in the country for more than 15 days but fewer than 30 days will be issued e-visas within 24 hours.
Besides Chinese tourists, Singaporeans are also visiting Genting Highlands in increasing numbers.
Industry observers say this could be due to the weaker ringgit vis-à-vis the Singapore dollar.
The Singapore dollar has strengthened 18% to RM3.05 from two years ago.
According to the Ministry of Tourism and Culture, Singapore visitors to Malaysia rose 6% to 3.34 million in 2Q2016 compared with the same period a year earlier.
Maybank Investment Bank raised its FY2018 to FY2019 estimated earnings of GEM recently taking into account more visitor arrivals, rental income from Sky Avenue and Sky Plaza, and higher average spend per visitor at its 20th Century Fox World theme park, which is part of the GITP project.
“Case in point, 12-month forward EV/Ebitda surged from 4.5 times in September 2006 to 9.7 times in July 2007 after the 6,118-room First World Hotel fully opened in December 2005. First World Hotel boosted RWG’s inventory by 150% and drove Genting Malaysia’s earnings to breach the RM1 billion mark in FY2007. In fact, we gather that the rerating would have been higher if the earnings of associate, Genting Hong Kong Ltd (then known as Star Cruises), had not deteriorated,” it states in the report.
UOB Kay Hian research also has a “buy” call on the stock with a sum-of-parts-based target price of RM5.10.
“Even though the current share price is close to our target price, we believe that Genting Malaysia’s share price could overshoot the target price in the near term as its momentum is linked to the phased openings of the GITP,” it states in the Oct 13 report.
The research house also says that the group’s management had shared that GEM is unlikely to give out a special dividend from its Genting Hong Kong stake sale, but may use the proceeds to settle some foreign currency-denominated debt.
Nevertheless, Khoo points out that its sister company, Genting Singapore, recently gave out a 1.5 Singapore cents dividend, which surprised investors. The Singapore-listed company saw a 14% y-o-y increase in its net profit to S$195.6 million for the nine months ended Sept 30, 2106.
GEM recently completed the sale of its 16.87% stake in Genting Hong Kong to related parties Tan Sri Lim Kok Thay and his family members. The sale raised US$415 million.
In an announcement to Bursa Malaysia on Sept 30 on the sale, GEM notes that it has yet to identify any specific investment.
As at June 30, GEM’s foreign currency-denominated short-term borrowings stood at RM747.1 million and long-term borrowings at RM1.4 billion. It also had long-term local borrowings of RM2.4 billion.
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