Genting Malaysia Bhd’s gaming segment stands to “potentially benefit significantly” from the additional investment under the company’s Genting Integrated Tourism Plan (GITP), says a note from Affin Hwang Investment Bank Bhd. The note followed a meeting with the management of the casino operator.
“We understand that a portion of the additional … capex [capital expenditure] on the Genting Integrated Tourism Plan (GITP) would be allocated towards expanding its gaming capacity in the podium (Sky Plaza),” said analyst Lim Tee Yang in a note on Friday, distributed by Daiwa Securities Co Ltd.
Genting Malaysia in February announced that it would be doubling the investment under its GITP, in order to expand and add new facilities to the firm’s Resorts World Genting casino resort (pictured in a file photo). The total capital investment is now estimated at MYR10.38 billion (US$2.46 billion) from the original MYR5 billion announced in 2013.
Genting Malaysia – part of Malaysian conglomerate Genting Bhd – runs Resorts World Genting, Malaysia’s only casino resort, and operates casinos in the United States, the Bahamas and the United Kingdom.
According to Affin Hwang’s note, Resorts World Genting is scheduled to have additional gaming capacity – housed in the the podium – in the second half of 2016. The additional gaming facilities would be open in phases from the second half of 2016 onwards “depending on demand,” the note added.
“Resorts World Genting has bucked regional gaming trends which have continued to be soft,” said Mr Lim.
He added: “In 2015, Resorts World Genting recorded double-digit volume growth in both its mass and VIP segments. Underpinning the gaming-volume growth in Malaysia is the favourable mass/VIP revenue split of 60:40, which has been a boon for Genting Malaysia.”
Following the meeting with Genting Malaysia’s management, Mr Lim said the casino firm “has a target of achieving a mass/VIP revenue split of 50:50, and this would be partly achieved by catering its additional gaming towards the premium mass market (premium mass falls under the mass-market category)”.
“We note that Genting Malaysia has plans to introduce a luxury hotel under Phase 2 of the GITP, which would help to attract the premium mass in addition to VIP customers,” he added.
Margins intact
The Affin Hwang analyst said margins on earnings before interest, taxation, depreciation and amortisation (EBITDA) at Resorts World Genting “have remained quite resilient” despite the firm absorbing the cost of Malaysia’s Goods and Services Tax (GST). Since April 1, 2015, consumption of goods and services in Malaysia has been subject to a GST at 6 percent.
The investment bank expects Resorts World Genting to incur in additional costs such as pre-opening expenses and higher labour costs as the 20th Century Fox World theme park opens in 2017.
“However, we believe EBITDA margins would likely remain resilient thanks to additional gaming capacity in the podium in the second half of 2016,” said Mr Lim.
Genting Malaysia’s management expects Resorts World Genting to record 30 million visitors annually by 2020, which implies a five-year compound annual growth rate of 9.2 percent from 2015, according to Affin Hwang’s note.
“This expectation of high growth in visitor arrivals would be positive to Genting Malaysia given that its Malaysian operations (Resorts World Genting) generate the highest EBITDA margin and benefit from higher gaming volumes,” said Affin Hwang’s Mr Lim.
In Friday’s note, the investment bank said it expects Genting Malaysia’s to see narrower losses from Resorts World Bimini, in the Bahamas. “Management is still hoping to achieve EBITDA break even for Resorts World Bimini by year end,” said Mr Lim.
“Earnings at Genting U.K. remain volatile and difficult to forecast due to the recent steep decline in VIP volumes,” he added.
Genting Malaysia on Friday confirmed in a filing that it would be managing the casino at a resort being developed by a Native American tribe in Massachusetts in the United States.
Commenting on the latest announcement, Mr Lim said the investment bank expects Genting Malaysia “to earn a sizeable management fee” from managing the tribal casino developed by Mashpee Wampanoag Tribe.
