THE grand opening of Resorts World Las Vegas (RWLV) this summer marks Genting Group’s dream of staking a claim in the iconic Las Vegas Strip – possibly establishing itself as a leader in the global gaming industry.
Nevertheless, recouping RWLV’s investments will be slow given Las Vegas’ intensely competitive landscape and the lingering effects of COVID-19.
After all, the US$4.3 bil RWLV is the most extravagant integrated resort (IR) ever developed in Las Vegas and features by far the most extensive gaming facilities for a single property.
In its assessment of the gargantuan project, UOB Kay Hian Research foresees a conservative potential payback period that exceeds 10 years for RWLV.
“It would be a challenge to quickly achieve profitability and to ensure a quick project payback considering the high start-up and ongoing operational costs and competitive responses,” justified head of research Vincent Khoo in a company update.
“The US$4.2 bil Cosmopolitan – the latest (in 2010) mega casino in Las Vegas – delivered only a modest positive EBITDA (earnings before interest, taxes, depreciation, and amortisation) in its third year of operations and 3.6% EBITDA yield in its fifth year.”
With the lingering uncertainties of COVID-19 pandemic, UOB Kay Hian Research expects RWLV to initially operate at 40-50% capacity. This is given Las Vegas’ 1Q 2021 visitor volume was only at 5 million, down 51% from the pre-pandemic level in 2019.
“Nevertheless, wide vaccination rollout is starting to lift domestic visitorship, and would eventually usher in foreign visitors in 2022,” projected the research house. “We expect RWLV to achieve optimal capacity of 85-90% from 2024 onwards.”
RWLV which sits on a site which the Genting Group acquired for US$350 mil on the north strip in Las Vegas (Boyd Gaming’s abandoned Echelon Place project due to Subprime Crisis) was initially targeted to be opened in 2016 but was delayed several times due to design changes.
In December 2018, the progress was further hampered when Wynn Resorts filed a federal trademark infringement lawsuit alleging similarities between RWLV with its Wynn/Encore properties. Genting and Wynn later reached a settlement agreement in January 2019 with RWLV scheduled to open in June 2021.
Despite its long payback period assessment, UOB Kay Hian Research expects RWLV to eventually thrive in the Las Vegas Strip which is the second-largest gambling capital of the world.
Las Vegas Strip’s total revenue – prior to the COVID-19-struck 2020 – had been growing at a steady 10-year compound annual growth rate (CAGR) of 1.3% to reach US$6.6 bil (RM27.23 bil) in 2019.
All-in-all, UOB Kay Hian Research retained its “buy” rating on Genting with a higher with a higher sum-of-the-parts (SOTP)-based target price of RM6.73 (from RM5.84 previously).
“It has been observed that IR (integrated resort) stock prices generally trend higher towards the opening of a major property during normal times. However, Genting could underperform thereafter, unless there is the unlikely scenario of RWLV delivering strong results,” added the research house.
At the close of today’s morning session, Genting was up 1 sen or 0.21% to RM4.70 with 3.98 million shares traded, thus valuing the company at RM18.22 bil. – May 18, 2021
