Does Genting Malaysia (GENM) worst is over, bottom out ? is GENM = Gems for Golden year in 2020 & Beyond?
Based on analysts latest site visit & talk to mgmt, actually
Genting Malaysia (GENM - 4715) outdoor theme park is almost to near
completed right now. GenM OTP is near to full 100% work complete on the
theme park structures. All construction and work development are done
since early Dec'2019, currently waiting to allow for 3-4months months of
rides testing. “Fox Disney” would need to provide “final
certification,” before anything could open, noted the analyst.
OTP described as 26 acres (10.5-hectares) in area – expected to soft
opening in the third quarter of 2020, with 20 rides at that stage – four
of them rollercoaster-type attractions – using “Fox intellectual
property”. The latter was a reference to the Fox entertainment brand.
Assets of that brand were recently subject of a takeover move by Walt
Disney Co, that was clinched in March.
When construction of Resorts World Genting’s outdoor theme park is
completed it will have 25 rides, “of which two will run underground,”
suggested Maybank. “For the remaining five rides, Genting Malaysia may
employ intellectual properties from other studios but has not decided on
which ones yet. This is why the outdoor theme park cannot re-assume its
previous name, 20th Century Fox World,” wrote Mr Yin.
‘Dynamic pricing’
In July Genting Malaysia said it had reached a settlement “fully
resolving” a US$1-billion lawsuit versus several entities of the Fox
entertainment brand and the Walt Disney Co. Mr Yin gave guidance in his
Monday memo that Genting Malaysia management expected the theme park to
have circa 1,100 employees, 40 percent of whom had already been hired,
with the remainder due to be taken on “three to four months” before the
soft opening.
Genting Malaysia now does not provide guidance on average ticket
prices, expected ticket price approximately MYR200 previously. The
casino firm had given guidance it would use “dynamic pricing” for the
facility – i.e., higher prices during peak periods and lower ones at
other times – and that there would be “no distinction” in ticket pricing
between Malaysians and non-Malaysian patrons.
The outdoor theme park would have seven restaurants – three of them
“outsourced” and 11 food kiosks, said Maybank. “Initially, the outdoor
theme park will run for 10 hours a day. That said, Genting Malaysia
stated that the outdoor theme park could run for longer during weekends
and anniversaries going forward.”
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Genting Malaysia bets on better hand in 2020 with theme park launch
This article first appeared in The Edge Malaysia Weekly, on December 23, 2019 - December 29, 2019.
THE
year has not exactly been the best for Genting Malaysia’s stock, which
has been underperforming and is trading at valuations near 10-year
lows. Will the gaming company be dealt a better hand in 2020? Some in the investing community are hopeful that it might open its outdoor theme park earlier than the second half of next year.
“The
tentative plan is to open it in the third quarter of next year but if
all goes better than expected, there is an expectation that it could be
earlier than that. Some rides are already being tested,” says a gaming
analyst who made a site visit. A
senior executive with Genting Group declined to comment, only stating
that the group will make an announcement on the opening when the time is
right. Amid
considerable interest in the launch date, Genting Malaysia’s share
price has slipped to levels that have courted the interest of analysts.
Macquarie
Equities Research recently initiated coverage on the counter with an
“outperform” rating and a target price of RM3.75 — a 14% upside to last
Wednesday’s close of RM3.22. “Despite
the company’s margins performing below their structural potential,
Macquarie Research sees a lot of opportunities in the longer term and is
positive on Genting Malaysia, and believes that the company is focused
on rebuilding investor confidence, which reduces near-term risks,” it
states in a Dec 12 report.
Genting Malaysia is its “highest conviction pick in Asia gaming”. The
foreign research house does not believe the stock’s seven times
enterprise value multiple reflects the group’s high base mass exposure
in the country, which offers consistent cash flow. Rather,
it believes investors in Genting Malaysia should apply a similar
multiple as US regional gaming stocks that are trading at about eight
times, given similarities in free cash flow (FCF) generation and mature
growth outlook.
Macquarie
Research’s RM3.75 target price was arrived at by applying eight times
multiple to its 2021 forecast, implying an 18% upside in addition to
Genting Malaysia’s stable 6% dividend yield. “Meanwhile,
with FCF ramping in 2021 and beyond, Macquarie Research sees Genting
Malaysia’s 11% FCF yield supporting both deleveraging and enhanced
capital returns to shareholders,” it adds.
Another
foreign research house, UOB Kay Hian Research, upgraded its call on
Genting Malaysia to an “overweight” last month, and upped its target
price to RM3.60 from RM3.16 in November. “The
outdoor theme park will significantly enhance Genting Malaysia’s status
as a provider of world-class entertainment and further boost its
tourist patronage. Assuming 9,000 visitors per day, average spending of
RM260 per pax (including F&B spending) and Ebitda (earnings before
interest, taxes, depreciation and amortisation) margin of 30%, Genting
Malaysia can rake in RM256.2 million Ebitda per year,” it estimates.
Also
turning more positive about the stock is RHB Research, which has
upgraded its earnings estimates and backed its “buy” call with an
increased target price of RM3.96.“As
we obtain greater clarity on the outdoor theme park plus Empire
Resorts’ recent positive Ebitda quarter, we believe sentiment will
improve, especially on a strong set of results, while valuations remain
at trough,” RHB Research notes in a Nov 29 report.
“We
increase our FY19F to FY21F earnings [by] 3.3%, 0.4% and 2.2%
[respectively], as we lift our margins assumption following the strong
set of results. Accordingly, we lift our target price. While the
environmental, social and governance de-rating from the related-party
transaction is not a distant memory yet, we believe the steep price
correction (more than RM2 billion) has been overdone,” it adds.The
gaming stock has been trading at an average of RM3.15 for the year (up
to Dec 18) — more than 20% below its five-year average price of above
RM4.
It started the year below the RM3 level at RM2.85 after hitting a five-year low of RM2.633 on Dec 14 last year.
The
stock has been hovering at the RM3 level this year — a shadow of the
RM4 levels it enjoyed over 2017 to 2018 before it was hit in November
last year after the government announced a 10% hike in gross gaming
revenue taxes. Genting Malaysia’s share price then tumbled by a whopping
20%. Then,
in August this year, the shares fell another 12% intraday after Genting
Malaysia announced the acquisition of a substantial stake in lossmaking
Empire Resorts, angering investors.
Maybank
Investment Bank Research opines in a Nov 29 report that investors will
“stay on the sidelines until they get a handle of the losses generated
by Empire Resorts”. It expects 4Q2019 to be sequentially stronger for Resorts World Group due to “seasonally more visitors”.
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