Genting Malaysia - Doubling Up On GITP

Genting Malaysia surprised the market by doubling the allocation for its GITP to MYR10.4bn. While we continue to believe that this would help to spur visitation interests to its flagship Genting Highlands in the long run, we are wary of the series of delays in the proposed timeline to complete the project. As such, we maintain our NEUTRAL stance with our SOPbased TP fine-tuned to MYR4.46 (from MYR4.18, 2% upside).

GITP revamped. The announced budget increase in Genting Integrated Tourism Plan (GITP) caught us by surprise, as the group assured investors during last quarter’s briefing that the capex allocation remained unchanged at MYR5bn. Management explained that the revised budget will help to expand current as well as introduce new facilities. Although details are scant at this juncture, we understand that Phase 1 of the revamped GITP will now cost MYR8bn-8.4bn. This includes the proposed 20thCentury Fox outdoor theme park (which will now cost over MYR2bn vis-à-vis MYR1bn previously), revamping of its indoor theme park, construction of new staff accommodationsand investments in new supporting infrastructure. Phase 2 of the development will cost over MYR2bn and involve the construction of new luxury hotels as well as a new show arena. While we continue to believe that this would help to spur visitation interest to its flagship Genting Highlands in the long run, we are wary of the series of delays in the proposed timeline of completion. Funding,however, should not be an issue given its current net gearing of 0.01x and annual operating cash flow of over MYR2bn-MYR2.5bn.

Potential hike in gaming taxes. There has been speculation that the Malaysian Government could soon re-visit a potential hike in gaming taxes to help boost the nation’s coffers. We estimate that every 1% hike in casino tax could potentially erode Genting Malaysia’s earnings by 2.5-3%. Risks. Key risks include fluctuations in luck factor, prolonged losses at Resorts World Bimini and a potential hike in casino taxes.

Maintain NEUTRAL. We make no major changes to our earnings forecasts. We fine-tune our TP to MYR4.46 (from MYR4.18) as we updated our SOP components to reflect its latest net cash balance as well as the market value of its 17.8% stake in Genting Hong Kong (678 HK, NR) . Given the limited upside, we maintain our NEUTRAL call.










DCF valuation. We assume an annual capex allocation of MYR2bn for FY16F-18F (from MYR850m-MYR1.5bn previously) before tapering off to MYR1.0bn-1.5bn pa in the foreseeable future as the group looks to fully roll out the revised Phase 1 of its GITP over the next two to three years. We peg a terminal growth rate of 1.5% (from 1.0%) as visitation interest could be rejuvenated in the long run upon the progressive opening of its new gaming and entertainment facilities under the GITP. We also re-jigged our WACC to 8.3% (from 8.7%), taking into account higher debt weightage to fund for its revised MYR10.4bn GITP. In deriving our TP of MYR4.46, we have also imputed its latest net cash position and effective stake of 17.8% in Genting Hong Kong (678 HK, NR).