50% rise in visitors to Genting Highlands expected

This was revealed by Affin Hwang Capital research, which produced an extensive report on Genting Malaysia after a meeting with the company’s management.

 

The report stated that Genting Malaysia expected Resorts World Genting (RWG) to record 30 million visitors annually by 2020, due to the anticipated rise in gaming capacity from the company’s RM10bil transformation initiative.

 

Affin Hwang Capital said Genting Malaysia’s forecast for RWG implied a five-year compounded annual growth rate of 9.2% from 2015, which saw 19.3 million visitors.

 

“This expectation of high growth in visitor arrivals would be positive to Genting Malaysia, given that its Malaysian operations (RWG) generate the highest earnings before interest, taxes, depreciation and amortisation (EBITDA) margin and benefit from higher gaming volumes.

 

“We believe Genting Malaysia’s relatively aggressive target is likely within management’s reach, given the crowd-pulling factor of having the world’s first 20th Century Fox World theme park as well as its positioning as a shopping haven,” Affin Hwang Capital said in a report.

 

The research house noted that Universal Studios Singapore (USS) attracted two million visitors in the first nine months of its opening, despite being double the size of the Fox World theme park. In 2015, USS attracted seven million visitors.

 

“In addition, RWG would see an anticipated influx of shoppers once Sky Avenue (positioned as a lifestyle mall) and Genting Premium Outlets (GPO) opens in the second half of 2016,” it said.

 

In February, Genting Malaysia announced that it was doubling the capital investment under its Genting Integrated Tourism Plan (GITP) to RM10.38bil from RM5bil initially. GITP involves the redevelopment and transformation of RWG.

 

Some analysts reckon that RWG could see an increase of between 100 and 300 tables at the hilltop resort. Exact details are scarce, given the sensitivities as applications for additional gaming capacity must be made directly to the Finance Ministry.

 

According to reports, RWG could see an increase in the number by 300 because of the resort’s room-to-table ratio of 20 hotel rooms for every table versus a ratio of three to five hotel rooms per table in other countries.

 

Going forward, Affin Hwang Capital said growth would still come from its gaming operations, primarily in Malaysia.

 

This is set to expand under the GITP, said the research house, adding that Genting Malaysia would nonetheless benefit from a small stream of recurring income via rental in Sky Avenue.

 

“RWG, which contributes about 80% of Genting Malaysia’s EBITDA, is scheduled to have additional gaming capacity from the podium in the second half of 2016. RWG has bucked regional gaming trends, which have continued to be soft.

 

“In 2015, RWG 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,” it said.

 

The brokerage said that in the long term, Genting Malaysia had 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.

 

“We note that Genting Malaysia has plans to introduce a luxury hotel under Phase 2 of the GITP, which will help to attract the premium mass in addition to VIP customers.”

 

Separately, analysts believe that Genting Malaysia’s appointment as manager of native American-destination resort casino, First Light Resort & Casino (FLRC), would help boost the company’s presence in the US.

 

“We are positive on this overseas investment strategy as it will protect Genting Malaysia from any potential start-up losses,” said UOBKayHian.

 

Despite being positive, the research house said its “back-of-the-envelope” calculation suggested that this project would have modest earnings enhancement impact on Genting Malaysia.

 

“Also, we note that the earnings contribution would only come in late 2017 or early 2018 onwards,” it said.

 

Hong Leong Investment Bank (HLIB) also said the appointment of Genting Malaysia as manager of the US-based resort casino would boost the company’s overseas presence.

 

However, it said earnings contribution was uncertain as Genting Malaysia’s investment was in the form of interest-bearing promissory notes without equity interest.

 

“Using conservative estimation parameters, we estimate gaming revenue of around US$440mil (RM1.7bil) a year for FLRC. With EBITDA margin of 15%, bottomline contribution is around RM250mil.”

 

HLIB said despite the potential catalyst from the US casino, it was maintaining a cautious stance on the contribution to Genting Malaysia.

 

“Besides, we are also aware on the execution risk and potential competition from a potential rival casino (Brockton) being awarded licence in the same region with just 20 miles apart.”

 

AmInvestment Bank, in its report, said the management of the US casino would allow Genting Malaysia to receive management fees without facing construction and operational risks.

 

“Assuming a management fee of 8% of net revenue, average table win of US$2,000 per day and average slot win of US$100 per day, we estimate that Genting Malaysia’s net profit would improve by 3% to 5%. The basis of the management fees was not disclosed.”

 

When completed, First Light Resort & Casino will feature, among others, a high-concept 150,000-sq-ft casino featuring 3,000 slots, 150 gaming tables and 40 poker tables.