Casino operator Genting Malaysia Bhd may see its margins hurt in the near-term by potentially increasing operating costs, suggests CIMB Investment Bank Bhd. But the investment bank retained its earnings forecasts for the company’s fiscal year of 2017 to 2019.
“While we think that the group’s newly-opened Genting Integrated Tourism Plan (GITP) facilities such as Sky Avenue, Sky Casino and Genting Premium Outlet could improve visitor arrivals and boost revenue growth … higher operating costs (i.e. utility, staff and depreciation costs) could crimp margins in the near term,” CIMB analyst Kristine Wong wrote in a Wednesday note.
The investment bank believes that the growing operating and depreciation costs could “outpace the revenue growth” of Genting Malaysia from its new facilities in the near term, and as such the casino operator may see its margins under pressure “at least for the first half of 2018”.
Genting Malaysia mentioned during its third-quarter earnings announcement in November that it was “looking forward to the roll out” in 2018 of a 20th Century Fox World Theme Park at its Resorts World Genting casino resort outside the Malaysian capital, Kuala Lumpur, as well as to the opening of a new indoor theme park. The facilities are part of GITP, a multi-phase initiative described as a 10-year master plan for a major revamp for Resorts World Genting.
Genting Malaysia runs Resorts World Genting, Malaysia’s only casino resort, and operates casinos in the United States, the Bahamas and the United Kingdom.
The Wednesday note was published following a recent meeting between the CIMB analyst and the management of Genting Malaysia.
CIMB said it expected the indoor theme park at Resorts World Genting to be fully operational by the end of the first half this year. Genting Malaysia also aims to reopen part of this theme park – featuring 18 new rides – before the Chinese New Year festivities, which falls in mid-February, wrote Ms Wong.
The note said that Genting Malaysia’s management expected the outdoor 20th Century Fox World Theme Park to be ready in the second half of 2018. The firm would also increase marketing efforts to attract more Chinese visitors to the theme park, a project likely to also boost the number of casino patrons and gaming revenue, noted CIMB.
The investment bank says it makes no changes to its earnings forecast for the fiscal year of 2017 to 2019. It has also forecast a sequential improvement in Genting Malaysia’s fourth quarter 2017 earnings on the back of “normalisaton of VIP win rates” and “higher business volumes for both the VIP and mass market” due to year-end festivities.
“We are expecting the group to chart earnings growth of 24 percent year-on-year for the fiscal year of 2018 on the back of normalising VIP hold rates as well as gaming volumes for its casinos in Malaysia,” said Ms Wong.
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"I am not going to speculate on what the [casino licence refreshment] tender requirements would be. I have full confidence and faith in the Macau government to treat everyone fairly"
Wilfred Wong Ying Wai
President and chief operating officer of Macau-based casino operator Sands China