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Highlands redevelopment a catalyst for Genting Malaysia

KUALA LUMPUR: The completion of the new theme park and hotels in as early as 2016 under the RM5 billion-Genting Integrated Tourism Plan (GITP) is expected to stimulate growth at Genting Malaysia Bhd (GenM), said analysts.

However, before that, it is likely that the group’s bottomline may remain stagnant as visitation could be affected by refurbishment and construction works taking place, they added.

Amid competition from new gaming heavens in the region, analysts said GenM needs to freshen up the attractions at Genting Highlands to stimulate growth.

As a matter of concern, the group saw a slight drop in its net profit in finanacial year 2012 (FY12), to RM1.4 billion from RM1.43 billion in FY11. Its nine-month earnings until Sept 30, 2013, however, showed a rebound to RM1.2 billion from RM957 million previously.

Under the GITP, GenM would invest RM5 billion to uplift the facilities, infrastructure and amenities of Resorts World Genting (RWG), including the development of the world’s first Twentieth Century Fox World theme park and a number of new mid-range to luxury hotels on the highlands.

With such large scale investments on Genting Highlands, an analyst from Public Invest Research expected GenM’s profit to increase by about 8% to 10% a year following the rejuvenation plan.

Nonetheless, he expected weaker numbers in terms of tourists before the completion of the new theme park. “With the closure of the theme park since Sept 1, the number of visitors to Genting casino is likely to be affected.”

According to him, since GenM currently enjoys a rather high occupancy rate of 96% for its hotels in Genting Highlands, its profit will easily pick up after the development of a new hotel with additional 1,300 rooms.  

Meanwhile, Maybank Research has maintained its ‘buy’ rating on GenM. Its analyst Yin Shao Yang said in a note yesterday that he was positive on the RM5 billion-plan as historically, RWG had benefited from its past expansion or rejuvenation efforts, especially those involving the increase of hotel rooms.

Yang explained that in year 2003 to 2006, RWG raised its room count to 9,770 and its revenue grew at a 13% compound annual growth rate (CAGR) while visitor arrivals grew at 6% CAGR.

“As the 1,300 rooms will raise RWG’s room count by 13%, its revenues should grow by a similar rate,” he said.

Yin added, “We estimate that if RWG’s revenue were 13% higher, GenM’s revenue and earnings before interest, taxes, depreciation and amortisation would rise by 9% and 11% respectively.”

Another analyst from another research house opined that internal return rates of theme park and hotels over the world are very low, “It [GenM] has to find ways to generate higher return rates through its gaming business.”

However, he said it would be positive for the group after the refurbishment of its theme park and hotels, “In those years when it underwent refurbishment or added more hotel rooms, we could see significant pick-up in its profit.”

UOB KayHian has remained its ‘hold’ rating on GenM. Its analyst Vincent Khoo said in a note yesterday that the ‘hold’ call was mainly due to pedestrian FY14 forecast earnings growth as a result of the theme park closure.

Khoo added, “Nevertheless, we continue to favour GenM over the longer term on visitation boost upon completion of phase one of the GITP, potential gaming expansion to drive earnings growth, and likely participation in the Resorts World Las Vegas project.”

RHB analyst Kong Heng Siong said in a report yesterday that it was too early to quantify the potential impact on GenM’s earnings as the facelift will only be completed earliest by the second half of 2015. The research house maintains its “neutral” rating for now.

GenM’s share price dropped 4 sen to close at RM4.35 yesterday, with 4.5 million shares changed hands. The company has a market capitalisation of RM26.07 billion.


This article first appeared in The Edge Financial Daily, on December 19, 2013.

 

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