This article first appeared in The Edge Financial Daily on October 22, 2019

Genting Malaysia Bhd
(Oct 21, RM3.06)
Maintain hold with an unchanged target price (TP) of RM3.38: We attended a small tour hosted by the management in Genting Malaysia Bhd’s Skytropolis and the Starlight Carnival in an opened part of the upcoming outdoor theme park.

Recall on July 26, 2019, Genting Malaysia announced a settlement agreement resolving disputes with Fox Entertainment Group and The Walt Disney Co and dismissing all claims and counterclaims against each other. As of now, the management is maintaining the targeted launch date — the third quarter of 2020 (3Q20), which we believe is relatively conservative. With the outdoor theme park’s capacity of about 10,000 visitors per day, we gather there will be initiatives to better manage crowds and reduce the duration of physical queues for rides which could typically take up several hours. The composition will consist of family-friendly rides, making up 60% of all rides and attractions. There will also be 11 food kiosks and seven restaurants from reputable franchises.

The outdoor theme park will house over 20 rides and attractions with most of its intellectual properties (IPs) to likely remain Fox-themed, with other potential IPs catering to the Asian market. The theme park is situated on a 26-acre (10.52ha) land, with the option to expand in future to house a new theme and additional rides. The rides and attractions are tailored to their respective themed-IPs compared to the previous outdoor theme park mainly using “off-the-shelf” amusement rides. Despite being a smaller space than the previous outdoor theme park — this is as a portion has been used to build the Sky Avenue — the theme park’s products and aesthetics have improved.

Ticket prices are still to be determined and we understand they will be benchmarked against other theme parks of a similar calibre. We’re expecting about RM200 for a day pass after benchmarking it to Universal Studios Singapore. Additional passes — express lane and annual one typically priced at 2.7 times day passes — will also be sold. The royalties required to pay for running the outdoor theme park’s IPs remain confidential.

Up-and-running indoor theme park Skytropolis is slated to operate 22 rides by end-2019 from 17 rides currently. Skytropolis staff members will have an opportunity to be promoted and stationed in the outdoor theme park, which we note requires adequate training to meet its operating standards.

We have tweaked our financial year 2021 forecasts upwards by 6.2% to better reflect the traction gained from the upcoming outdoor theme park as our previous forecasts were too conservative.

We maintained our “hold” call with an unchanged TP of RM3.38 and a discount of 20% to our sum-of-parts-derived TP of RM4.21 based on an enterprise value to earnings before interests, taxes, depreciation and amortisation multiple of nine times — +1 standard deviation above a three-year mean. Despite the outdoor theme park slated to be launched by 3Q20, we maintained our discount to reflect uncertainties of the turnaround plans for the Empire acquisition, hampering earnings beginning next year. — Hong Leong Investment Bank Research, Oct 21