Maintain BUY call and MYR4.18 TP.  Genting Malaysia‟s (GENM) share price fell 4% on Friday on New York Governor Andrew Cuomo‟s proposal for  three commercial casinos  in upstate locations only.  For GENM, the ideal situation  is to upgrade Resorts World New York (RWNY), located in New York City (NYC), into a commercial casino. We are unperturbed, as: (i) the proposals have yet to be approved; (ii) NYC casinos have not been ruled out; and (iii) the  „upstate‟ casinos may eventually be located very near NYC.

Not set in stone yet. The first constitutional amendment (CA) that was passed in Mar 2012 allowed seven commercial casinos in both upstate and downstate (NYC) locations. A second CA must be passed this year followed by a referendum slated for Nov 2013. If Mr. Cuomo were to alter the CA to match his proposal, he would require the approval of the legislature. Some lawmakers have already objected to his proposal, as they prefer that the casinos be located in NYC.

NYC casinos not ruled out. Shortly after his  proposal, Mr. Cuomo stated that he did not rule out commercial casinos in NYC for „Phase 2‟. We believe that this is because not many gaming companies are willing to invest heavily in upstate casinos when footfall is higher in NYC. NYC welcomed a whopping 50m visitors in 2012. Simple economics will likely compel him to revisit the idea of NYC casinos in the future.

‘Upstate’ casinos  may be  very  near NYC.  Native American tribes, especially the Senecas, operate casinos on their lands in western and northern New York. Their compacts with the state preclude the  latter from opening commercial casinos on or near their lands.  Also, Mr. Cuomo  stated that  „upstate‟ means north of the Bronx in NYC. This means that the three upstate casinos may be located just north of NYC.

Not all bad for GENM. As RWNY is located in NYC, GENM may not be able to upgrade it into a commercial casino under Mr. Cuomo‟s proposal. That said, we are unperturbed as under the same proposal, (i) no commercial casinos will compete with RWNY within NYC and (ii) GENM can still bid to build a casino in an upstate location  very  near NYC. Therefore, we are still bullish on GENM‟s M&A prospects.

Source: Maybank Research - 14 Jan 2013