Genting Malaysia - Rank Group wins Gala casinos in UK Buy

- According to news reports, The Rank Group, a casino company controlled by Tan Sri Quek Leng Chan has been granted approval by UK’s Competition Commission for an acquisition that would make it the largest casino operator in the UK. 

- With the acquisition of Gala Casinos Ltd, Rank Group would have 58 casinos in UK. In comparison, Genting Malaysia Bhd (GenM) has about 44 casinos in UK currently. Prior to Rank’s acquisition of Gala, GenM was the largest casino operator in UK.

- There is a possibility that competition between GenM’s UK casinos and Rank Group would intensify. However, UK’s Competition Commission had approved Rank’s acquisition on the basis that it found that the casinos competed for customers at a local level. 

- In any case, GenM’s edge lies in its database of customers from its Malaysian operations. GenM has been slowly attracting customers from Malaysia to its casinos in London. 

- Casino patronage at GenM’s UK casinos has improved. In 9MFY12, number of visitors at the casinos in London rose 6% YoY while those at the provincial casinos inched up 3% YoY.

- In spite of this, we believe that the volume of business generated in GenM’s UK casinos is still insufficient to offset any big wins by high-rollers. This has resulted in volatile earnings whenever there is a low win percentage. 

- GenM’s UK casino unit recorded an EBITDA of RM150.8mil in 9MFY12 versus RM98.8mil in 9MFY11. However in 3QFY12, the casino division recorded a loss of RM13.8mil due to poor luck factor. 

- A silver lining is the development of GenM’s large casino in Birmingham. We believe that the large casino would help the group compete with Rank and smoothen the earnings volatility in the UK unit. “Resorts World at the NEC”, Birmingham is estimated to cost about 150mil pounds (RM750mil). Construction has already started and the casino is targeted for completion in FY15F. 

- We maintain a BUY on GenM for its resilient earnings from Malaysia and New York. Valuations are also undemanding at an FY13F PE of 12.5x.   

Source: AmeSecurites