GENTING MALAYSIA BHD

By Public Investment Bank Research Rating: Neutral (Maintained) Target price: RM5.05

GENTING Malaysia Bhd’s (GenM) indoor theme park and the 20th Century Fox World outdoor theme park are expected to be opened in the first and second half of 2018.

Public Investment Bank Research (PublicInvest) believed the opening of the theme parks would lead to a surge in visitor arrivals, but may not translate into immediate growth to its bottom line due to higher depreciation cost and other operating expenses.

As at Sept 30, 2017, GenM spent RM7.8bil on Genting Integrated Tourism Plan, which is 75% of the cost.

In the UK, GenM has adopted a new marketing strategy to focus more on the premium mass market, which resulted in its UK casino business delivering positive results.

Overall for the group, PublicInvest said GenM aimed to maintain a 60:40 ratio between mass and VIP market.

The house said although volume was smaller for the mass market, margins were higher and more stable. For the financial year 2018 (FY18) forecast, PublicInvest forecast the UK operations to contribute about 10% of the group’s earnings before interest, tax, depreciation and amortisation (with remaining 82% from Malaysia and 8% from the United States and other markets).

In the meantime, as at Sept 30, GenM’s total investment in promissory notes for the financing of the Mashpee Wampanoag Tribe’s development of an integrated resort in the United States amounted to US$368.9mil (RM1.56bil).

The house said the US Fed was reviewing the tribe’s rights to the land and has not announced a date upon which they would issue a final decision.

The project development was put on hold pending further court action.

“We believe investors will remain concerned over potential impairment risk on this investment and this would continue to be an overhang issue in 2018,” PublicInvest noted.

The research firm kept its FY17-FY19 earnings forecast and projected the FY18 earnings to expand by 25%.

“This is mainly due to the low base in FY17, while earnings momentum is expected to pick up only in second half of 2018,” PublicInvest said, keeping a “neutral” rating on the stock with unchanged target price of RM5.05.