Stock Name: GENM
Company Name: GENTING MALAYSIA BERHAD
Research House: OSK
Genting Malaysia Bhd
(June 11, RM2.75)
Maintain buy at RM2.64 with target price RM3.15: Genting Malaysia has confirmed that its indirect wholly owned subsidiary, Genting New York LLC, is bidding for the rights to develop and operate video lottery terminal (VLT) facilities at Aqueduct Racetrack in the city of New York.
Genting New York LLC has submitted a US$1 million (RM3.29 million) entry fee to the New York lottery on June 1. Genting New York is currently evaluating the project and has until June 29, 2010 to decide if it wishes to formally submit a bid.
The details on the development and upfront licensing cost remain sketchy. We note that bids of up to US$2 billion were proposed in 2007 for the 'racino' project in Aqueduct, while the latest round of bidding in 2009 involved an upfront licensing fee of US$300 million.
We estimate that net profit margins could be as low as 5% and ebitda (earnings before interest, tax, depreciation and amortisation) margins potentially ranging from 9% to 14% versus Genting Malaysia's core domestic casino margins of 40% to 45%.
Assuming a net win per VLT/day of US$290, which is what the closest racino (Empire City casino at Yonkers Raceway) in proximity to Aqueduct earned in 2009, we estimate that the Aqueduct racetrack casino could generate average revenue of US$473.3 million.
However, due to the various legislative deductions, bottom-line contribution from the project could equate to less than 5% of Genting Malaysia's PBT. Note that our US$290 net win per VLT/day also assumes the upper end of net wins for racinos around New York city.
Valuations are undemanding at 5.7 times EV/Ebitda versus regional large scale peers' eight times to 14 times. Although we are slightly negative on Genting Malaysia's potential bid for the racino project in New York City with only marginal potential incremental returns, we await greater clarity on the details of the development expenditure and the actual legislative deductions that it may have to comply with.
What is a racino? A combination of racetrack and casino. In New York, racinos have only video gaming machines. The closest racino to Aqueduct is Empire City at Yonkers raceway which has 5,300 VLTs and live harness racing. These VLT games cost from a penny to US$100 to play. ' OSK Investment Research, June 11
This article appeared in The Edge Financial Daily, June 14, 2010.
Company Name: GENTING MALAYSIA BERHAD
Research House: OSK
Genting Malaysia Bhd
(June 11, RM2.75)
Maintain buy at RM2.64 with target price RM3.15: Genting Malaysia has confirmed that its indirect wholly owned subsidiary, Genting New York LLC, is bidding for the rights to develop and operate video lottery terminal (VLT) facilities at Aqueduct Racetrack in the city of New York.
Genting New York LLC has submitted a US$1 million (RM3.29 million) entry fee to the New York lottery on June 1. Genting New York is currently evaluating the project and has until June 29, 2010 to decide if it wishes to formally submit a bid.
The details on the development and upfront licensing cost remain sketchy. We note that bids of up to US$2 billion were proposed in 2007 for the 'racino' project in Aqueduct, while the latest round of bidding in 2009 involved an upfront licensing fee of US$300 million.
We estimate that net profit margins could be as low as 5% and ebitda (earnings before interest, tax, depreciation and amortisation) margins potentially ranging from 9% to 14% versus Genting Malaysia's core domestic casino margins of 40% to 45%.
Assuming a net win per VLT/day of US$290, which is what the closest racino (Empire City casino at Yonkers Raceway) in proximity to Aqueduct earned in 2009, we estimate that the Aqueduct racetrack casino could generate average revenue of US$473.3 million.
However, due to the various legislative deductions, bottom-line contribution from the project could equate to less than 5% of Genting Malaysia's PBT. Note that our US$290 net win per VLT/day also assumes the upper end of net wins for racinos around New York city.
Valuations are undemanding at 5.7 times EV/Ebitda versus regional large scale peers' eight times to 14 times. Although we are slightly negative on Genting Malaysia's potential bid for the racino project in New York City with only marginal potential incremental returns, we await greater clarity on the details of the development expenditure and the actual legislative deductions that it may have to comply with.
What is a racino? A combination of racetrack and casino. In New York, racinos have only video gaming machines. The closest racino to Aqueduct is Empire City at Yonkers raceway which has 5,300 VLTs and live harness racing. These VLT games cost from a penny to US$100 to play. ' OSK Investment Research, June 11
This article appeared in The Edge Financial Daily, June 14, 2010.
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