GGRAsia – GEN Malaysia theme park might come at nil cost: analyst

GEN Malaysia theme park might come at nil cost: analyst

Nov 28, 2018 Newsdesk Latest News, Rest of Asia, Top of the deck

Genting Malaysia Bhd might end up receiving at nil cost an outdoor theme park at its flagship property Resorts World Genting if it wins a lawsuit it filed this week in a U.S. court, suggested a Tuesday note from Maybank Investment Bank Bhd.

The institution thinks the casino firm could successfully run such a facility without a “20th Century Fox World Malaysia” moniker – a branding previously announced by Genting Malaysia – because the firm already had experience of running an own-brand theme park at the Genting Highlands site (pictured) near Malaysia’s capital, Kuala Lumpur. But Japanese brokerage Nomura voiced doubts that a new facility without Fox branding would have the same pulling power for the public.

There was a 17 percent fall in the casino company’s share price on Tuesday, coinciding with news that it was suing Fox Entertainment Group LLC and some related companies, as well as The Walt Disney Co – currently suitor to many of the Fox brand’s entertainment assets. The lawsuit is regarding a termination notice on a 2013 deal for use of Fox branding in the theme park.

But Maybank said it was “sanguine” that Genting Malaysia could run a theme park on its own. “Recall that Genting Malaysia operated its own outdoor theme park before shutting it in September 2013,” said the memo from Maybank analyst Samuel Yin Shao Yang.

The casino firm’s “current share price implies that the outdoor theme park investment has been written off and Genting Malaysia may even receive it for free with spare change if it wins its US$1 billion claim,” added Mr Yin.

The stock slipped on Bursa Malaysia by close of business on Tuesday, ending at MYR3.00 (US$0.715) from MYR3.60 at the start of that day’s trading, according to Bloomberg data. By mid-morning on Wednesday, it had slipped further, to MYR2.99.

U.S. lawsuit

According to a Tuesday filing to Bursa Malaysia by Genting Malaysia, referring to the claim lodged on Monday in the U.S. District Court in Los Angeles, California, the casino group is claiming back the money it has spent so far on the theme park – which it says in separate guidance to analysts is US$750 million – and punitive damages that “in total will exceed US$1 billion”.

Maybank said in the light of events, it was cutting earnings estimates for Genting Malaysia’s financial years 2019 and 2020 by respectively 8 percent and 10 percent.

Japanese brokerage Nomura was a little more bearish on Genting Malaysia, which has been buffeted recently also by announcement of increases in gross gaming tax on VIP and mass-market gaming, imposed on its Malaysia operation by that country’s government.

“The theme park dispute will erode confidence further,” said analysts Tushar Mohata and Alpa Aggarwal.

“Coming so soon after the 10 percentage point gaming tax hike in Malaysia, it further jeopardises the earnings trajectory of Genting Malaysia,” added the Nomura team.

“Going through the 29-page complaint document reveals that it appears the theme park’s construction has been mired in dispute for years now – possibly one of the reasons for multiple delays over the years,” added the analysts.

“While a theme park without Fox intellectual property is possible in a worst-case scenario, it is not necessarily a positive given the US$750 million sunk into the project so far,” Nomura further noted.

The brokerage cut its forecast for visitor numbers to Resorts World Genting by 6 percent for 2019 and 2020, and cut theme park revenue estimates by 65 percent, resulting in cuts of 20 percent for earnings estimates in fiscal 2019 and fiscal 2020 respectively.