Genting Malaysia unveils Resorts World Miami master plan

Written by The Edge Financialy Daily   
Genting Malaysia Bhd
(Sept 19, RM3.36)
 
Maintain hold at RM3.36 with target price of RM3.70: Genting Malaysia’s US$3 billion (RM9.33 billion) master plan for Resorts World Miami (RWM) is modelled on Resorts World
Genting (RWG), we believe.

While we are positive, we maintain our estimates, “hold” call and RM3.70 target price as we believe that the earnings impact will not feature in the near term. Construction on RWM is unlikely to start until it obtains approval for a casino, not expected for another one to two years. Nonetheless, that prospect should keep Genting Malaysia’s share price buoyant.

Note that the master plan calls for a total room inventory of 6,200, much larger than Resorts World Sentosa’s (RWS) 1,600 but still fewer than RWG’s10,000.

We gather that Genting Malaysia will position RWM as a mass market resort like RWG and not a VIP resort like RWS. If approved, a casino will be housed on the third and fourth floors.

RWM will be sited on a contiguous area of 30 acres, larger than the initial 13.9 acres purchased for US$236 million on May 27. According to the local media, Genting Malaysia
purchased another 7.2 acres for US$49.6 million in August 2011.

Genting Malaysia’s press release also states that it acquired the entire US$205 million of mortgage notes on the Omni Center but did not specify the price. We have not accounted for the latter two in our forecasts but do not expect them to impact our estimates materially.

The Florida legislature will reconvene on January 2012 and deliberate on the issue of liberalising non-Native American casinos over the next one to two years.

It has to consider if the proposed 10% gaming tax on gross gaming revenues (GGR) will outweigh the US$1 billion over five years tax compact with the Seminole casinos that it will have to forego. Genting Malaysia’s management expects construction on RWM to start in 2H13.

We believe that it will not commence until the liberalisation is achieved.

While we like the RWM master plan, we maintain our call and discounted cash flow-based target price until Genting Malaysia obtains the approval for a casino there. Nonetheless,
we still believe that RWM, with a casino, will accrete at least 66% to earnings before interest, tax, depreciation and amortisation (assuming US$1 billion GGR). That prospect
should keep Genting Malaysia’s share price buoyant. — Maybank Research, Sept 19
Tuesday, 20 September 2011 15:36