Genting Malaysia, the country’s only casino operator, is ramping up preparation works as it prepares to begin rolling out the first stages of its RM10.38 billion ($2.46 billion) Genting Integrated Tourism Plan in the second half of this year.
The company, which has said that it expects the economic environment to be challenging in 2016, is forecast to open its Sky Avenue & Sky Plaza shopping malls, and a new cable car station progressively by the end of the year. However, its much touted Twentieth Century Fox World theme park has been delayed to late 2017.
According to analysts at AllianceDBS Research, the firm has obtained regulatory approvals for a new casino at Sky Plaza, though management has only provided minimal details on the additional gaming capacity obtained.
In Q1, Genting Malaysia’s reported profit fell by 55.4 percent to RM161.6 million mainly due to unrealized foreign exchange losses. Revenue gained 6 percent. Its Q2 results are not yet available.
“Stripping out this and other exceptional items, the core profit dropped by only 8.3 percent YoY to RM324.5 million, which accounted for 30 percent of our full-year forecast and 24 percent of consensus estimates, TA Securities said in a note.
Management has said that the Malaysian economy is slowing, with consumer spending hurt in particular by the introduction of a Goods and Services Tax in April last year. The group maintains “a cautious stance” on the near term outlook for the gaming industry given the region-wide headwinds facing the VIP sector, but says it continues to be positive in the longer term.
Genting said it expects to incur an increase in pre-opening expenses in coming months as it ramps up construction work, but gave no further details.
Analysts say Genting’s mass market base will help to cushion the company from the worst of the problems facing some other jurisdictions and concur that the GITP will be one of the main catalysts for future growth at the operator.
“Based on our forecast, mass/ premium mass players will continue to contribute 55 percent of the revenue,” Morgan Stanley said in a note. “Currently, 70 percent of Genting Malaysia visitors are day- trippers and this could increase with the new cable car system,” which was scheduled to open in June.
“We forecast 15 percent EBITDA CAGR for Genting Malaysia in 2015-18e, on the opening of GITP facilities starting 3Q16,” it added.
GITP stock boost
The lead up to the opening of GITP facilities may also boost the company’s stock price, said the brokerage. “As GENM is less reliant on VIP, its shares could see a rally similar to other openings as attractions are progressively opened from 3Q16.”
Meanwhile, Fitch Ratings has affirmed Genting Berhad’s Long-Term Foreign-Currency Issuer Default Rating (IDR) and unsecured rating at ‘A-’, also pointing to the stable performance of the mass business.
Earlier this year, the company said it was doubling its investment in the GITP, which is designed to overhaul ageing facilities at the resort, with the addition of new hotel capacity, shopping and tourism facilities.
The capital investment under Phase 1 of the GITP will increase from RM4 billion to RM8.11 billion. Under this phase, the first-ever branded Twentieth Century Fox World theme park will see a substantial increase in investment which is now expected to exceed RM2 billion.
Genting is targeting 30 million visitors by 2020.
While Genting’s domestic operations have been lacklustre, the group has suffered worse fortunes overseas.
In Q1, the group’s U.K. operations had been showing signs of improvement, helped by revenue from its Resorts World Birmingham property. However, the U.K. referendum vote to divorce from the European Union hit the company hard, as it is one of the most exposed in Asia to sterling revenue.
The pound slumped to a more than 30-year low after the Brexit decision, which will hurt Genting’s earnings in that currency. With 43 casinos in the U.K., Genting Malaysia ranks among the 10 Asia-Pacific companies most at risk to Britain’s economic slowdown, Bloomberg data show.
Meanwhile, its plans to run a casino on behalf of the Mashpee Wampanoag Tribe are currently being reviewed by a federal U.S. judge after opponents of the planned casino argued that land on which the casino is being developed was wrongly designated as native American land.
The tribe is developing the First Light Resort and Casino just south of Boston, which was to be run by Genting for seven years. The First Light project includes a 150,000-square-feet (13,935-sq-metres) casino, featuring 3,000 slot machines, 150 gaming tables and 40 poker tables.
The judge presiding over the case has said he will rule by the end of this month.
The company is also in a legal tussle over plans for a casino in downtown Miami. Genting is suing Miami-Dade County and Miami-Dade State Attorney Katherine Fernandez Rundle to gain permission for a casino in the Omni area, according to local media reports.
Miami Beach has filed a “friend of the court” brief arguing that the plans would draw tourists away from other local businesses, increase crime and worsen traffic.
The group last year missed out on obtaining a new casino license for New York state and is instead looking at expanding its Resorts World Casino at Aqueduct Racetrack in Queens with an investment of about $400 million.
The company wants to add 1,000 video lottery terminals and an additional casino expansion. It also seeks a new hotel and convention complex.
It is also building a $4 billion resort in Las Vegas scheduled to open in 2019.
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