GENM (4715) : Genting Malaysia - Place your bets
Target RM5.90 (Stock Rating: ADD)
As the sole casino monopoly in the region, it is insulated from the anti-corruption crackdown in China as its customers are local mass market and Asean-based VIPs. A casino licence win in New York and expansion in gaming capacity in 2016 are strong re-rating catalysts. GenM is our top pick in the gaming sector. We maintain our Add rating with an increased TP, as we add 38 sen to our RNAV to account for a New York (NY) casino win, and rollover into FY16. We cut FY14-16 earnings by 14-34% for poor 1H14 results, negative impact of GST and delay of the new casino tables at Genting to FY16 from FY15. In the unlikely event of the failure to win a single licence, our worst-case TP of RM5.48 still offers 34% upside.
GenM is our top pick in the gaming sector. We maintain our Add rating with an increased TP, as we add 38 sen to our RNAV to account for a New York (NY) casino win, and rollover into FY16. We cut FY14-16 earnings by 14-34% for poor 1H14 results, negative impact of GST and delay of the new casino tables at Genting to FY16 from FY15. In the unlikely event of the failure to win a single licence, our worst-case TP of RM5.48 still offers 34% upside.
New York New York!
With the US mid-term elections out of the way, we expect an announcement of the winners of the NY upstate casino bids by year-end. Despite the stiff competition in Orange County (six bidders), Catskills region, we are confident of GenM winning one of the bids. GenM has offered the highest licensing fee for Sterling Forest casino and 50-100% higher salaries for both its casino bids. It also has strong lobbyists and has made significant campaign contributions. Our preliminary estimates suggest a 38-60 sen in incremental contribution to GenM’s RNAV (Sterling Forest: 60 sen, RW Hudson Valley: 38sen), based on project IRRs of 11-13% and debt-equity ratio of 70-30. We expect the new casino to start in early-2017 as the winners are given 24 months to commence gaming activities upon winning the bid.
Resorts World Genting
In a recent site visit to Genting, we learnt that another 1,300 rooms will be ready by year-end. We estimate that the casino floor extension could add another 250 tables to its existing 600 tables. We forecast 100 new table additions in FY16 and 50 new tables annually thereafter. With increased visitation from the opening of the theme park and Genting Premium Outlet, we expect a 20% jump in mass market wins per table and slots for FY16. We expect a strong re-rating of the stock in 2H15 as the market anticipates the new table additions in 4Q15.
Deeply undervalued
At GenM’s current share price, the stock is trading at a 5% discount to the value of its Malaysian operations Investors are receiving Genting UK, Genting New York, its net cash holdings and the option value on the New York upstate casinos for free.
Source: CIMB Daybreak - 14 November 2014
Target RM5.90 (Stock Rating: ADD)
As the sole casino monopoly in the region, it is insulated from the anti-corruption crackdown in China as its customers are local mass market and Asean-based VIPs. A casino licence win in New York and expansion in gaming capacity in 2016 are strong re-rating catalysts. GenM is our top pick in the gaming sector. We maintain our Add rating with an increased TP, as we add 38 sen to our RNAV to account for a New York (NY) casino win, and rollover into FY16. We cut FY14-16 earnings by 14-34% for poor 1H14 results, negative impact of GST and delay of the new casino tables at Genting to FY16 from FY15. In the unlikely event of the failure to win a single licence, our worst-case TP of RM5.48 still offers 34% upside.
GenM is our top pick in the gaming sector. We maintain our Add rating with an increased TP, as we add 38 sen to our RNAV to account for a New York (NY) casino win, and rollover into FY16. We cut FY14-16 earnings by 14-34% for poor 1H14 results, negative impact of GST and delay of the new casino tables at Genting to FY16 from FY15. In the unlikely event of the failure to win a single licence, our worst-case TP of RM5.48 still offers 34% upside.
New York New York!
With the US mid-term elections out of the way, we expect an announcement of the winners of the NY upstate casino bids by year-end. Despite the stiff competition in Orange County (six bidders), Catskills region, we are confident of GenM winning one of the bids. GenM has offered the highest licensing fee for Sterling Forest casino and 50-100% higher salaries for both its casino bids. It also has strong lobbyists and has made significant campaign contributions. Our preliminary estimates suggest a 38-60 sen in incremental contribution to GenM’s RNAV (Sterling Forest: 60 sen, RW Hudson Valley: 38sen), based on project IRRs of 11-13% and debt-equity ratio of 70-30. We expect the new casino to start in early-2017 as the winners are given 24 months to commence gaming activities upon winning the bid.
Resorts World Genting
In a recent site visit to Genting, we learnt that another 1,300 rooms will be ready by year-end. We estimate that the casino floor extension could add another 250 tables to its existing 600 tables. We forecast 100 new table additions in FY16 and 50 new tables annually thereafter. With increased visitation from the opening of the theme park and Genting Premium Outlet, we expect a 20% jump in mass market wins per table and slots for FY16. We expect a strong re-rating of the stock in 2H15 as the market anticipates the new table additions in 4Q15.
Deeply undervalued
At GenM’s current share price, the stock is trading at a 5% discount to the value of its Malaysian operations Investors are receiving Genting UK, Genting New York, its net cash holdings and the option value on the New York upstate casinos for free.
Source: CIMB Daybreak - 14 November 2014
