Tuesday 5 June 2012

Genting Malaysia: Minor Setback in New York


THE BUZZ
New York Governor Andrew Cuomo said in an interview on Friday that talks with Genting Group to develop an integrated casino/exhibition centre on Genting’s Aqueduct Race track "haven't really worked out".

OUR TAKE
Gunning for USD4bn integrated casino/exhibition centre. To recap, the New York State Urban Development Corp had invited Genting Malaysia via its wholly-owned subsidiary, Genting New York LLC, to build a convention and exhibition centre in New York that would also incorporate a 3,000-room hotel at a total estimated cost of USD4bn. Both Genting New York and Empire State Development Corp (the business entity of the New York State Urban Development Corp) were to negotiate terms in good faith, with a view of entering into a binding memorandum of understanding on or before 30 Nov 2012.
Not ruling out its chances entirely. We believe that the latest setback indicates that the New York Governor may be contemplating other sites and plans, while opening up the bidding to more potential bidders and not necessarily ruling out Genting Malaysia’s prospects entirely. However, this could imply that the group may have to come up with a new plan other than the current integrated casino/exhibition centre proposal at its Aqueduct.
Legislative amendments remain the key hurdles. The hurdle that needs to be cleared is the amendment of the constitution to allow full-fledged live table gambling in New York, with gaming activities currently restricted to native American-owned tribal casinos and video lottery terminals at racinos. Other obstacles include competition from other bidders, infrastructure support and a suitable gaming tax regime.
Market has not factored in casino in New York. As such, we doubt that the market has factored in any potential positive upside arising from the likelihood of Genting Malaysia being able to secure a full-fledged casino operating licence in New York at this juncture, given the fluidity of the situation.
Lower visibility. That said, we do agree that the latest piece of news is certainly a dampener in the group’s aggressive casino forays in the US after the letdown in Miami. The need to reconfigure its casino bidding plans in New York to potentially incorporate a new site and compete with 6 other bidders will certainly increase the cost while reducing the certainty of the group in securing a full-fledged casino operating licence.
Maintain BUY, FV: RM4.21: Strong backing from robust cash flow to tap other opportunities. However, given that valuations remain appealing and since the market and our house have factored in zero chance in Genting Malaysia securing a full-fledged casino licence in New York at this juncture, we retain our FV of RM4.21, earnings estimates and BUY recommendation. Given the robust and steady cash flow from its existing operations, the group is still able to channel its resources to other global gaming opportunities.

Source: OSK

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