RESORTS World Bhd, which continued to buy back its shares, has outperformed the Kuala Lumpur Composite Index (KLCI), easing only 16% against KLCI’s 18.8% drop year-to-date, said Aseambankers Research.
The research house has maintained its buy recommendation on the stock but is reviewing the target price of RM3.70 for a possible upgrade, “particularly if an overseas merger and acquisition opportunity arises”.
“We understand that the entry costs to the present regional greenfield and M&A opportunities in the gaming industry may be too lofty. Nevertheless, armed with a cash hoard of RM3.05 billion and annual operating cash flows of more than RM1.1 billion, Resorts World would eventually have a strong bargaining power in this environment of sliding global asset prices,” it said in a research note.
Aseambankers has raised its 2008 and 2009 forecasts on Resort World’s net income by 6.8% and 16.4%, respectively, on assumption of better yield management and respite from neighbouring competitors, Las Vegas Sands and Genting International in Singapore.
It said construction of their integrated resorts and casinos (IRC) continued to be hampered by rain, which has affected its schedule to commence business ahead of its 1Q2010 target.
Upon commencement of the two IRCs, Resorts World’s premium segment, which accounts for 30% of its revenue could be affected and consequently its earnings could be wiped out by 15% to 20%, said Aseambankers.
Aseambankers has also forecast that Resorts World’s gaming revenue would grow 6.1% and 1% in 2008 and 2009. The slowing momentum reflected cautious sentiment at both the grind and high roller segments amid the present global financial turmoil as well as the end of the 20-month Visit Malaysia Year (VMY) campaign, it said.
“Our forecast impute a gradual slowdown in the gaming revenue per head through 1H09. Next year’s pedestrian growth reflects a slight decline in estimated footfall at the casino of 3% (from 2007’s 6% to 7%), in the absence of the VMY campaign.”
It added that Resorts World’s upside could be capped by potential fears of a gaming duty hike, as the government may need to enhance tax receipts.
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