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This article first appeared in The Edge Financial Daily on January 16, 2019

Gaming sector
Maintain market weight:
For Genting Malaysia Bhd, investors remain focused on the opening date of its nearly completed outdoor theme park, despite its modest direct earnings before interest, taxes, depreciation and amortisation (Ebitda) contribution to Genting Malaysia. It is estimated to enhance Genting Malaysia’s total 2019 to 2020 forecast Ebitda by 3% to 6% if it were to start operating from June 19. While construction works for the theme park are nearly completed, its opening date remains unclear.

Genting Malaysia is still assessing options including the possibility of settling its dispute out of the court with Twenty-First Century Fox group of companies (Fox) and Walt Disney Co. For now, Genting Malaysia is doing maintenance work at the theme park property, including running the available rides to avoid malfunctions due to being idle for too long. Genting Malaysia would incur a cost of about RM15 million per quarter — about 3% to 4% of total profit before tax (PBT) — for the maintenance work, before the theme park is open for business.

Genting Malaysia’s first court hearing date for the lawsuit against Fox and Disney is expected to be known in early 2019. To recap, Genting Malaysia’s lawsuit is to claim for the cost of its investments and consequential and punitive damages, in total will exceed US$1 billion (RM4.1 billion).

On Genting Bhd, its upcoming hotel and casino resort in Las Vegas — Resorts World Las Vegas (RWLV) — has filed its opposition to the Wynn Resorts Holdings’ application to temporarily and preliminarily restrain RWLV from further construction of the RWLV property due to its curved bronze windows or horizontal banding that constitute a portion of the unique and famous Wynn Design.

Targeting to open at end-2020, RWLV said it is still in an early stage of construction, and that the completed property will look dramatically different from Wynn’s properties. Construction activities at the RWLV site continue and remain on track. Recall the RWLV phase one is a US$4 billion project with 340 hotel rooms. We understood that the RWLV construction is less than 50% completed, with Genting spending about US$1 billion in capital expenditure thus far.

We maintained our “market weight” on the gaming sector due to a lack of clear catalysts for now. Our top pick is Genting, because despite the ongoing litigation, the RWLV project makes up a modest 5% of our total revalued net asset value (RNAV) for Genting. We do not foresee the court case as an immediate threat that could significantly delay Genting in opening the RWLV. Moreover, our target price had conservatively assumed a 40% holding company discount.

We like Genting for its attractive valuation of 6.3 times 2019 forecasts enterprise value/Ebitda, 0.7 times price-to-book value ratio, and an indirect exposure to Genting Singapore PLC’s greenfield integrated resorts opportunity in Japan. — UOB Kay Hian, Jan 15

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