This article first appeared in The Edge Financial Daily on March 21, 2019
Genting Malaysia Bhd
(March 20, RM3.40)
Maintain buy with an unchanged target price (TP) of RM3.98: We visited Resorts World Genting (RWG) on March 15 with some clients. Takeaways include growth in tourist arrivals and gaming volumes (post opening of new attractions), yield-improving initiatives and uptrending revenue per available room (RevPAR). We stick with our call, given undemanding valuations (enterprise value to earnings before interest, taxes, depreciation and amortisation [EV/Ebitda]: 7.5 times versus [vs] peer average of 12.6 times) on top of several potential upside risks in the near term.
We were greeted by busy casino floors at both SkyCasino and Genting Casino, especially in the mass area. We understand that overall gaming volumes grew in the first quarter of 2019 (1Q19) on newly opened facilities at RWG: Skytropolis indoor theme park and Zouk Genting (both opened in December 2018), as well as the fully tenanted High Line alfresco dining street. The growth in gaming volume does not come as a surprise, as all gaming facilities are fully completed. In our view, Genting Malaysia is well-positioned to capture more mass and VIP players moving forward — VIP gaming volume was robust and grew 10% year-on-year (y-o-y) in financial year ended 2018 (FY18), while the non-VIP segment grew 5% y-o-y. We also observed the installation of tablet gaming monitors at Genting Casino, which are in line with the group’s cost-cutting initiatives.
Skytropolis is 60%-complete out of a total ride count of 22. It is slated to be fully opened by FY19. Maintenance works at the outdoor theme park are still ongoing in line with our expectations. Maintenance costs are estimated at about RM10 million to RM12 million per quarter. The VOID, a virtual reality gaming experience, continues to gain traction, with two new games: Nicodemus and Ghostbusters. Genting Malaysia also plans to introduce Imaginatrix, a new attraction that combines physical rides and state-of-the-art virtual reality gaming technology. The opening timeline has yet to be ascertained at this juncture.
Crockfords Hotel’s occupancy rates range from 70-80% on weekdays to usually fully-booked on weekends. We noticed that average room rates have increased since our last visit.
We make no changes to our financial year ending 2019 and 2020 forecast (FY19F-20F) earnings. Key risks to our call include fluctuations in luck factor, a potential smoking ban for casinos, and any further hurdles prior to the opening of the outdoor theme park. — RHB Research Institute, March 20