Trounced by a Mouse
Disney dispute comes at a time when sentiments on Genting Malaysia are already bad
PETALING JAYA: What stands between Genting Malaysia Bhd and a fox? A mouse.
Management of Genting Malaysia Bhd did not address the termination of the contract to build the first Fox-branded theme park on the grounds of default by behemoth The Walt Disney Co and 21st Century Fox during its conference call with analysts last Friday.
Genting has sunk some US$750mil into its Fox theme park project that was supposed to be opened in the first half of next year.
Since last Monday, Genting Malaysia’s share price has fallen from RM3.60 to close at RM2.86 as at Friday. Year-to-date, Genting Malaysia’s share price is now down 47.86% and its market cap has almost halved to RM16.34bil.
During Genting Malaysia’s conference call for its third quarter results last Friday evening, management stated that they would not be speaking or addressing any issues relating to the Disney-Fox theme park issue.
“When the conference call started, their first statement was that they would not say anything on the Disney-Fox issue. They wouldn’t be talking about the outdoor theme park at all, not even on the hiring of labour for the theme park, nothing,” said one analyst who was part of the conference call.
“This was the main thing that analysts wanted to ask them. It was the elephant, or actually, the mouse in the room that needed to be addressed,” said another analyst.
The conference call focused on the company’s third quarter results. While there was an impairment loss, analysts said it was expected, and not the most major concern.
Genting Malaysia posted net losses of RM1.49bil in the third quarter ended Sept 30, 2018, mainly due to impairment losses on the group’s investment in the promissory notes issued by the native American tribe for the development of an integrated gaming resort in the US on a piece of tribal land.
Genting Malaysia recorded an impairment loss of RM1.83bil relating to the group’s total investment (including accrued interest) in the promissory notes issued by the Mashpee Wampanoag tribe.
The RM1.49bil net loss was in contrast with the net profit of RM193.77mil a year ago. It recorded a 15% growth in total revenue to RM2.59bil from RM2.27bil.
The adjusted earnings before interest, taxation, depreciation and amortisation increased significantly by 86% to RM814.8mil. However, the group registered a pre-tax loss of RM1.27bil.
“Minus the impairment, Genting’s operational numbers are all right. Investors will definitely look beyond these numbers. It is the Fox theme park which will weigh on the stock price,” said the analyst.
Last Monday, Genting Malaysia faced one of its most challenging moments in its gaming lifespan. It was announced that Walt Disney and 21st Century Fox had abandoned the contract to build the first Fox-branded theme park on the grounds of default.
It poured cold water on the grand announcement made in July 2013, when Resorts World Genting (RWG) positioned itself as developing the world’s first international 20th Century Fox theme park.
The licensing partnership between RWG and Fox would see the hilltop holiday destination transformed into a world-class integrated resort with the theme park as a prominent feature.
First targeted to be completed in 2015, visitors would get to experience a host of entertainment that would include popular film brands such as Ice Age, Rio, Alien and Night at the Museum.
However, construction of the theme park has been constantly plagued with delays. It was supposed to be opened end-2017, but has since been delayed to the first half of 2019.
Genting Malaysia is now suing Walt Disney and 21st Century Fox for more than US$1bil.
The company said “seller’s remorse” induced Fox, with Disney’s help, to breach its 2013 contract with Fox Entertainment Group to license intellectual property for Fox World, a proposed addition to its Resorts World Genting complex, an hour’s drive from Kuala Lumpur. The lawsuit was filed in the US District Court in Los Angeles.
According to the complaint, Disney is now “calling the shots,” and wants to end the contract because associating with a gaming company does not fit into its “family-friendly” brand strategy.
Last week, Nomura Securities said there were no two ways about this and believes the theme park dispute will erode confidence further. “This is a big negative for the share price. Coming so soon after the 10 percentage points gaming tax hike in Malaysia, it further jeopardises the earnings trajectory of Genting Malaysia. “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. “Our admittedly basic reading of the document suggests that it will take time for these issues to work themselves out through legal due process or settlement, and while a theme park without Fox intellectual property is possible in a worst-case scenario, it is not necessarily a positive given the US$750mil sunk into the project so far,” said Nomura. Genting’s problems started after Disney acquired the Fox television studio, which has more than 30 series in production, and the 20th Century Fox movie studio, which controls the “X-Men” and “Avatar” franchises. On Dec 14, 2017, Disney first announced a definitive agreement to acquire 21st Century Fox for US$52.4bil in stock. Subsequently, it upped its bid to US$71.3bil as it faced competition from Comcast. Disney and Fox shareholders approved the acquisition on July 27 this year. The deal is expected to be completed on Jan 1, 2019. It is a double whammy for Genting Malaysia, who barely a month ago was already handed out punitive measures during the tabling of the Pakatan Harapan government’s first budget. Casino duties will also be revised up to 35%, which represents a 10 percentage point increase over existing duty rates. This will take effect from Jan 1, 2019. Without the Fox theme park, there are also concerns on the prospects of the other food and beverage and consumer outlets that have tenanted space in Genting Highlands on the anticipated arrival of the theme park. “When we first moved in to Genting last year, we asked when Fox would open. That was the pretext for us moving. Business has been bad so far,” said one brand owner who has his fashion brand up in Genting. The big question now is what Genting is going to do to fill the void left by the Fox theme park.