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Resorts World NY opens to a roaring success

KUALA LUMPUR (Nov 11): The larger-than-expected crowd at the newly opened Resorts World New York (RWNY) gives a big boost to Genting Malaysia Bhd's (GenM) share price.

The casino stock climbed to a 52-week high of RM3.87 during the week when its Aqueduct racino commenced operations on Oct 28.

According to media reports, the racino drew 20,000 patrons on the opening day, exceeding its capacity of 15,000.

The New York Lottery Organisation's weekly net win statistics for racinos in New York showed an average daily net win per machine of US$651 (RM2,051) for GenM's RWNY for the week ended Oct 29, trumping all the other eight racinos in the state.

This was more than double the US$267 recorded by Empire City Casino at Yonkers Raceway, GenM's biggest rival there. The casino's average daily net win per machine fell 14% upon RWNY's opening, which suggests punters may have been lured by RWNY's new facilities.

"This had exceeded expectations as consensus was only projecting an average daily net win per machine of between US$300 and US$400," said a gaming analyst. Under Phase 1, RWNY will be offering 2,485 gaming machines with slightly over 220 electronic table games (ETG).

RWNY will eventually have 5,000 machines, of which 475 units will be ETG.

In a research note, CIMB Research said: "We attribute the strong winnings to the novelty effect of the new facility and the inclusion of ETG which we gather can fetch up to two to three times the revenue of a regular video lottery terminal (VLT)."

However, CIMB Research acknowledged that this "novelty" effect "is not sustainable" and will eventually subside. It anticipates the "novelty" effect to last until early new year with the second phase of the racino due to be launched by mid-December.

It said a better gauge of how RWNY will perform moving forward would be best seen early next year when the racino is fully operational.

CIMB Research forecasts a 10% increase to GenM's earnings next year. It projects net profit of RM1.56 billion and earnings per share of 26 sen.

In terms of return on investment, RHB Research estimates it at 9% based on capex of US$580 million.

Historically, other casinos in the state have done quite well, recording 4% to 5% year-on-year (y-o-y) growth. However, an analyst commented that GenM's management has been too conservative in its expectations as it has guided for a 1% y-o-y growth.

Moving forward, another major catalyst as well as risk to GenM would be the approval of the destination resort legislature by the Florida state.

GenM has submitted its proposal on a US$3.8 billion casino holiday resort at Miami to Florida Gaming Commission. But the group has yet to receive the authorities' green light to run a casino in the state.

Apart from GenM, MGM Resorts International, Wynn Resorts Ltd and Las Vegas Sands have expressed interest in running a casino there.

However, only GenM has submitted a complete masterplan so far. Apart from the challenge of getting the legislation passed and securing the bid, the proposal on building a casino has drawn criticism from the local community, including the Walt Disney Co.

Analysts expect GenM to continue its mega project in Florida even in the scenario where it fails to obtain a casino licence. However, GenM's investment is likely to spread over 10 to 15 years, instead of three to five years.

This stark comparison in the completion timeline may be attributed to the time GenM would be able to recoup its investment.

"With the casino licence, Genting would be able to ramp up the payback period for its investments as earnings would be recouped faster," an analyst said.

The bulk of the financing for Resorts World Miami would be taken from GenM's existing cash pile as revenue from RWNY would not be fully realised yet, she elaborated.

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