Tuesday, 5 March 2013

Genting Bhd - Resorts World is now in Las Vegas

News  GENTING Bhd announced that it is acquiring the Echelon site on the Las Vegas Strip from Boyd Gaming Corp for USD350m and has outlined plans to build a USD2.0b hotel-casino resort on the 87-acre development, which was halted since the recession in Aug 2008.

 The partially completed structures include: 1) a 10-level hotel tower, 2) a 2-level casino podium, 3) a 3-level convention centre, 4) a 3-4 level theatre and 5) 3-6 levels of parking garages.

 According to news reports, the project, which will be known as Resorts World Las Vegas, will include 3,500 rooms and a 175,000 sq ft casino in the initial phase, and is expected to open in 2016.

Comments  This is not unexpected as it has been longing for casino operations in the US. It will be the group’s third venture in the US after New York and Miami. This will also be the group’s first casino in the country as its current operation, Resorts World New York City, is just a racino.

 According to Wall Street Journey, the freehold land purchase price of USD4m/acre is among the lowest in a decade in the Las Vegas Strip as developers had spent USD34.7m/acre for empty land here in the pre-crisis period of Jul 2007.

 With the group’s current record cash pile of RM21.0b and its experience in Resorts World Sentosa, it should have the financial strength and ability to execute this project.

 Although this was announced by GENTING, we believe it may eventually be housed under GENM.

Outlook  It is still too early to gauge the earnings accretion as Las Vegas casinos have yet to recover from its deep downturn. 2012 gaming revenue in Las Vegas Strip only grew 2% YoY and is still 10% down from 2007 glory day levels. However, with its Asian background, GENTING may be able to attract Chinese gamblers to this new casino resort.

 Nonetheless, the completion date of 2016 is beyond our forecast horizon.

Forecast  We are keeping our FY13-FY14 forecast unchanged for now.

Rating   Maintain MARKET PERFORM

Valuation  Our target price is maintained at RM10.22/share based on an unchanged 20% holding company discount to its SOP.

Risks  The risk to this project could be the execution risk and the slower than expected recovery of the casino business in the Las Vegas Strip.

Source: Kenanga

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