The dispute between Fox-Disney and GenM is fully resolved; the OTP will proceed with partly Fox and non-Fox IP. We believe excitement will return as this will still be the first theme park in Asia with Fox’s IP, and is likely to increase footprint. For now we keep our forecast unchanged pending clearer indication on OTP’s opening timeline. This may act as a good catalyst for foreign shareholders to return, as foreign shareholding on GenM is at an all time low of ~31%. Maintain BUY, with higher TP of RM4.21, as we increase our EV/EBITDA multiple to 9.0x (1SD above 3 years mean). Post upgrading GenM, our TP on GenT would increase to RM7.05, maintain HOLD.
NEWSBREAK
GenM announced that they have entered into a settlement agreement fully resolving their disputes against Fox-Disney. Both parties agreed to dismiss all claims and counterclaims against each other. For the uninitiated, in Nov 2018, GenM filled a USD1bn lawsuit against Fox for pulling out on an agreement for GenM to use Fox’s IP in their outdoor theme park (OTP).
As a result of the impending lawsuit, GenM previously guided for a delay in the OTP’s opening (originally scheduled for mid-2019) is so that it would not jeopardise the chances of its lawsuit.
HLIB’s VIEW
Theme park to open earlier than expected. Now that the legal case is resolved, we do not discount the possibility that the OTP will open sooner than expected. We note that the OTP is near completion and reckon it may be able to launch sometime in 2020. This also follows from an employment advertisement for GenM’s theme park division which was seen in several local newspapers over the past week (Figure #1).
Semi-Fox theme park is likely to increase footprint. We believe that the previous excitement on the OTP will return, despite not being a full Fox theme park. The group highlighted that they will still be utilising some of the Fox intellectual property (IP) and this will be the first theme park in Asia with Fox’s IP. As the OTP revives, we believe that chances for GenM to achieve its original visitor target of 30m p.a. are now higher.
Potential earnings upside. Currently, we have pencilled 26.6m visitors for FY20. Holding all else constant, our sensitivity analysis shows that for every 10% increase in visitors (from our assumption), will increase EBITDA by ~6.5% and earnings by ~8%.
Foreign shareholding all-time low. As of 1Q19, foreign shareholding was at an all time low of ~31% from a high of ~41% in 2015.
Forecast. Remain unchanged pending more insight on the OTP’s opening timeline.
Maintain BUY with higher SOP-derived TP of RM4.21 (previously RM3.53) as we increase the EV/EBITDA multiple for RWG in our SOP valuation from 7x to 9.0x (1 S.D above 3 years mean). We believe the dispute resolution and clearer direction of the OTP will act as an upswing factor in the near term. Post upgrading GenM, our TP on GenT would increase to RM7.05 (previously RM6.80), maintain HOLD.
Source: Hong Leong Investment Bank Research - 26 Jul 2019
https://klse.i3investor.com/blogs/hleresearch/216826.jsp
