Genting Malaysia Bhd
(Jan 7, RM3.11)
Maintain hold with an unchanged target price (TP) of RM3.25: We hosted Genting Malaysia Bhd’s management at our annual Malaysia Corporate Day last Friday, where they met almost 40 fund managers and buy-side analysts. Management was represented by senior vice president (VP) James Koh, assistant VP Yeoh Ru Hann and assistant manager Audrey Ng. Most of the investors’ questions focused on the development of a new outdoor theme park.
Genting Malaysia said it could not provide the investors with updates on the possible opening date of the new outdoor theme park, indicating it is still waiting for a court hearing date for the lawsuit against Walt Disney Co and 21st Century Fox Inc in which Genting Malaysia is claiming more than US$1 billion (RM4.14 billion) in damages. The company said construction works for the new outdoor theme park are more than 95% completed, but it would not be opened until after the lawsuit is settled.
In 2013, Genting Malaysia intended to invest just US$150 million (RM620 million) in the new outdoor theme park, and for construction works to be completed by end-2016. However, Genting Malaysia later decided to build a larger new outdoor theme park, leading to delays in its opening. So far, Genting Malaysia has invested US$750 million (RM3.1 billion) in the new outdoor theme park. Before the lawsuit against Walt Disney Co and 21st Century Fox Inc, Genting Malaysia was supposed to open the new outdoor theme park in mid-2019.
With the rise of casino tax of 10% from Jan 1, 2019, we understand that Genting Malaysia is looking at some cost-cutting initiatives including reducing incentives and rewards for major casino customers. However, we believe this would likely happen gradually as Genting Malaysia does not want to lose its major casino customers. Genting Malaysia also currently has about 14,500 staff members and we understand the company does not intend to increase staff costs until the opening date is set for the new outdoor theme park.
We maintained our earnings per share forecasts and TP of RM3.25, based on its revised net asset value and the stock remains a “hold”. Upside risks include the new outdoor theme park’s opening this year. Downside risks include the new outdoor theme park failing to open in 2019. Long-term charts show a strong support for the stock at RM2.85 and RM2.20. — CGSCIMB Research, Jan 7