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This article was first published in The Edge Financial Daily, the November 29, 2018.
+A Genting Malaysia Bhd
(Nov 28th RM3)
Maintain underperformance with a lower target price of RM 2.70: Genting Malaysia Bhd announced yesterday that it was suing Walt Disney Co (Disney) and Twenty-First Century Fox, claiming damages exceeding one billion US dollars (4.2 billion rand) for breach of contract for its outdoor theme park project in Genting Highlands. Genting Malaysia signed a Memorandum of Understanding with Twentieth Century Fox Licensing & Merchandising in 2013 under which Genting Malaysia was granted a license to use the intellectual property rights associated with motion pictures theaters for its outdoor theme park as part of Genting's integrated tourism plan. (GITP). We believe that court proceedings will take time and that, in the meantime, the opening of the theme park may be further delayed. This should affect visitor arrivals to Genting Highlands. We reduced our visitor arrivals growth rate from 8% -9% to 3% (based on the 10-year historical average) for the 2019 (FY19) and the FY09 forecast. 39, fiscal year 20F, which resulted in a 9% reduction in our earnings forecast – 16%. We also assigned a lower multiple of the price / earnings ratio (PER) for gambling activities in Malaysia to our assessment of the sum of the parts (14 to 9 times), due to the uncertainties surrounding its GITP project.
According to reports (The Star Online and Los Angeles Times), the problems began when Fox devised years of delay to force a renegotiation of the contract. In the initial agreement, Fox was only beginning to receive annual royalties and royalties after the park opened. However, the MoA was later modified in 2014 and 2017, allowing Fox to receive immediate annual royalties and royalties. Following the acquisition of Fox by Disney, the former was forced to end the MoA, Disney does not wish to be associated with gaming companies because of his "family". Fox then sent a notice of termination to Genting Malaysia and claimed about $ 46.2 million in accelerated payments. Genting Malaysia believes that Fox has no right to terminate the agreement and therefore claims investment costs and punitive damages in excess of US $ 1 billion. Genting Malaysia has invested approximately US $ 750 million in the theme park.
The opening of the outdoor theme park is expected to attract more visitors to Genting Highlands, with our previous forecast of an annual growth rate of visitor arrivals of 8% and 9% for the 19th and 20th years. We believe that the opening of the theme park will be further delayed (its initial opening was scheduled for the first half of 2019). As such, we reduced our growth rate of visitor arrivals to 3%, based on a 10-year historical average. As a result, we revised downward our earnings guidance for fiscal years 19 and 20 by 9% and 16%. In the event that Genting Malaysia wins the legal process and receives a billion dollar compensation, its GITP project could still remain in limbo with no major appeal. In our opinion, the search for an alternative intellectual property license would be a challenge. – PublicInvest Research, November 28
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