New York casino expansion will bolster Genting Malaysia’s position

PETALING JAYA: Genting Malaysia Bhd’s wholly-owned subsidiary Resorts World Casino New York City’s (RWNYC) proposed US$400 million (RM1.6 billion) expansion will enhance Genting’s market leading position among video-gaming operators in New York State, after having missed out on the commercial casino licence bidding last year, said HLIB Research.
It said using estimation parameter of US$450 net win per video lottery terminal per day, additional gaming revenue of circa US$50 million per year can be generated from the additional 1,000 machines.
“Together with the estimated non-gaming revenue of US$110 million per year drawing from the assumption of US$500 rev/psf, total incremental revenue is about US$160 million per year,” the research house said in a report yesterday.
Applying an earnings before interest, taxes, depreciation and amortisation (ebitda) margin of 15%, potential bottom line contribution is merely RM96 million (4% of Genting Malaysia’s FY15 ebitda). Contribution will also be eroded with the expected larger earning base from Genting Integrated Tourism Plan in coming years.
HLIB said funding a US$400 million project should not be a hurdle for the group given its strong cash-generating business and its ability to raise debt.
“However, we are cautious on its overly aggressive capex commitment on several projects simultaneously, such as the plan of US$1 billion Genting Massachusetts’s tribal casino (in the form of promissory notes), on top of GITP capex of RM10.4 billion. Funding multiple huge projects would turn Genting Malaysia into net debt position from a net cash position in the coming years, which would then increase the risk,” it said in a report yesterday.
HLIB is also aware of the execution risk and potential competition in the crowded market within New York State that possesses nine (including RWNYC) racinos (combined race track and casinos), five tribal casinos and the three commercial casino licences awarded end of last year.
HLIB maintained a “hold” recommendation on Genting Malaysia with an unchanged target price of RM4.48.
It was reported that RWNYC proposed to expand its business to build a 400-room hotel, 140,000 sq ft convention complex, retail outlets, 20,000 sq ft spa, and additional 1,000 video–lottery machines. The US$400 million expansion plan was outlined to the New York State Franchise Oversight Board (FOB) on June 27 and is expected to open in April 2019 if approvals from New York State Gaming Commission and the FOB are obtained.