Published on 25 Jul 2019.
RAM Ratings has reaffirmed Genting Malaysia Berhad’s (GenM or the Group) AAA/Stable/P1 corporate credit ratings, along with the AAA(s)/Stable ratings of the RM5 bil MTN Programme (2015/2035) and RM3 bil MTN Programme (2018/2038) issued by its wholly owned subsidiary, GENM Capital Berhad.
The reaffirmed ratings are premised on our anticipation that the Group’s credit metrics will remain robust. This is despite the expected and substantial erosion of its margins following the imposition of significantly higher Malaysian gaming duties effective 2019. We opine that the impact of the heftier taxes will be partially cushioned by GenM’s sharper competitive edge after the completion of almost all the attractions under Resorts World Genting’s (RWG) rejuvenation project. This will be complemented by a downward revision of the Group’s capex requirements in future.
“From 1 January onwards, the gross gaming revenue of GenM’s Malaysian operations will be subject to a 10 percentage point rise in duties, rising up to 35%. To minimise the impact, the Group is rationalising its costs and adjusting its marketing incentives. As such, its OPBDIT (operating profit before depreciation, interest and tax) margin will be squeezed less severely relative to the quantum of increase in gaming duties,” highlights Thong Mun Wai, RAM’s head of Corporate Ratings.
The current developments under the Genting Integrated Tourism Plan (GITP, RWG’s rejuvenation project) is at its tail-end. The redevelopment has incurred about RM8.4 bil to date. However, work on the almost completed outdoor theme park has been suspended following the termination of a memorandum of agreement by its key partner, Fox Entertainment Group, LLC. While the Group is committed to completing the outdoor theme park, it is currently reviewing options amid ongoing legal proceedings. We opine that the absence of this key attraction will interfere with RWG’s efforts to boost visitor volumes. Meanwhile, plans to build additional hotels under the GITP has not been decided.
The progressive completion of various attractions under the GITP has been raising visitor numbers, from just below 20 mil in 2013 to 25.9 mil in 2018 (2017: 23.6 mil). Notably, the opening of SkyCasino and the SkyAvenue mall significantly boosted visitor numbers last year. GenM’s Malaysian operations, buoyed by enhanced business volumes and luck factor, lifted its top line and adjusted OPBDIT to a respective RM9.93 bil and RM2.87 bil in fiscal 2018 (fiscal 2017: RM9.33 bil and RM2.21 bil), despite mixed showing from its UK as well as US and Bahamas operations. That said, the Group incurred a pre-tax loss due to a hefty RM1.83 bil impairment on investments in promissory notes issued by the Mashpee Wampanoag tribe in the US.
“GenM’s top line is envisaged to improve over the next three years, assisted by the gradual increase in visitor numbers at RWG and the progressive completion of the expansion of Resorts World Casino New York City by end-2020. Nonetheless, the Group’s OPBDIT is expected to dip on account of more punitive Malaysian gaming duties, and may take three years to recover to the levels of fiscal 2018,” adds Thong.
The Group’s debt level has been rising progressively to fund the development of the GITP, hitting RM9.88 bil by end-December 2018 (end-December 2017: RM7.15 bil). GenM’s debt load is envisaged to peak at about RM10.5 bil this year, after which its capex requirements will wind down significantly. The Group’s balance sheet remains strong; its net gearing ratio (including money market funds) is projected to climb up from 0.10 times as at end-December 2018 to a high of 0.22 times this year and the next. Given its still strong earnings and cashflow amid higher debts, GenM’s funds from operations net debt cover (net of cash and money market funds) is projected to halve from 1.47 times to below 0.70 times this year, although still robust. These metrics are anticipated to improve from fiscal 2020 onwards.
GenM is susceptible to regulatory risk in Malaysia, the UK, the Bahamas and the US, where it operates. This is evident in the Group’s local operations; substantial changes in gaming duties will crimp its earnings and cashflow. Additionally, GenM’s planned overseas expansion has encountered regulatory challenges, as underlined by its stalled casino development plans in Miami and Massachusetts in the US.
GenM is 49.5%-owned by Genting Berhad (Genting), a Bursa Malaysia-listed conglomerate. Besides businesses held via GenM, the larger Genting group is one of only two casino resort operators in Singapore, and has interests in oil palm plantations, power generation, property development, and oil and gas assets. In view of the two entities’ very close relationship, any change in Genting’s credit profile will affect GenM’s ratings. Genting’s financial profile is weighed down by significant investments in multiple developments. Its sizeable capex over the medium term includes the development of Resorts World Las Vegas and the enhancement of Resorts World Sentosa in Singapore. It has also indicated an interest in developing an integrated resort in Japan.
(603) 3385 2509
(603) 3385 2577
The credit rating is not a recommendation to purchase, sell or hold a security, inasmuch as it does not comment on the security’s market price or its suitability for a particular investor, nor does it involve any audit by RAM Ratings. The credit rating also does not reflect the legality and enforceability of financial obligations.
RAM Ratings receives compensation for its rating services, normally paid by the issuers of such securities or the rated entity, and sometimes third parties participating in marketing the securities, insurers, guarantors, other obligors, underwriters, etc. The receipt of this compensation has no influence on RAM Ratings’ credit opinions or other analytical processes. In all instances, RAM Ratings is committed to preserving the objectivity, integrity and independence of its ratings. Rating fees are communicated to clients prior to the issuance of rating opinions. While RAM Ratings reserves the right to disseminate the ratings, it receives no payment for doing so, except for subscriptions to its publications.
Similarly, the disclaimers above also apply to RAM Ratings’ credit-related analyses and commentaries, where relevant.
Published by RAM Rating Services Berhad
© Copyright 2019 by RAM Rating Services Berhad
Ratings on Genting Malaysia Berhad