GGRAsia – GEN Malaysia upside to spark 2017 re-rating: Nomura

GEN Malaysia upside to spark 2017 re-rating: Nomura

Feb 10, 2017 Newsdesk Latest News, Rest of Asia, Top of the deck

The stock of casino operator Genting Malaysia Bhd is likely in 2017 to experience “further re-rating, driven by the Malaysia and U.K.” operations, said a Friday note from Japanese brokerage Nomura.

“Genting Malaysia’s 14-percent run since January 2016 (versus the FTSE Bursa Malaysia KLCI Index’s -0.1 percent) was driven by a return of Chinese visitation and consensus earnings beats,” wrote analysts Tushar Mohata and Alpa Aggarwal, referring to a key target market for Asian casino operators and to an index comprising the largest 30 companies by full market capitalisation on Bursa Malaysia’s main board.

Genting Malaysia has invested heavily in a revamp of its Resorts World Genting casino complex – Malaysia’s only casino resort – in the belief the move will attract new customers and retain others, in the face of regional competition.

The opening of new dining facilities at Sky Avenue at Resorts World Genting, and “enhanced gaming” at the uplands property outside Malaysia’s capital Kuala Lumpur, “should mean higher earnings in 2017-2018,” wrote Nomura.

Genting Malaysia also runs casinos in the United States, the Bahamas and the United Kingdom.

“We expect Genting Malaysia’s re-rating to continue in 2017 due to: 1) progressive opening of the Genting Highlands refurbishment, with the new gaming podium (in 2017) and the 20th Century Fox theme park (early 2018) likely to be the key attractions; and 2) a stable U.K. business (London casino win has normalised to approximately 9 percent to 10 percent from 6 percent in 2015),” wrote the Nomura team.

The analysts added they also expected “strong headline profit of MYR1.5-billion [US$337.5 million]” in the fourth-quarter results to be published this month due to a gain on disposal of an approximately 17-percent stake in Genting Hong Kong Ltd, an associated Hong Kong-listed company that specialises in casino cruise ship operations and has an interest in a Philippines gaming resort.

Nomura said that while Genting Malaysia’s operations in the U.S. and the Bahamas were only likely to contribute 6 percent to full-year 2017 earnings before interest, taxation, depreciation and amortisation, there were likely to be some business developments in the U.S. that would support the stock in the future.

“In Florida, Genting Malaysia has reapplied for Federal Aviation Authority clearance for building towers… in Las Vegas, parent company Genting [Bhd] is likely to shoulder the [Resorts World Las Vegas] capital expenditure burden, as evidenced by its recent U.S.-dollar, one-billion, bond issuance,” said the brokerage, referring to a scheme to build a Chinese-themed casino resort in Nevada’s gambling hub. The project broke ground in May 2015.