Making Sense of RWM IPO

Travellers International hotel Group, Inc. (RWM, the “Company”) is the developer and operator of Resorts World Manila. Resorts World Manila, a 50% joint venture with Genting Hong Kong Limited (GHK), is an integrated tourism resort in the Philippines which started commercial operations in August 2009. RWM generates much of its revenues from gaming as shown below:RWM1

RWM is a strategically located integrated tourism resort which is right across to NAIA-3 and within four hour flight radius from highly populated areas in Asia.

RWM3

RWM2

RWM4

RMW currently comprises a casino and gaming facilities, a four-screen cinema, 1,500-seat Newport Performing Arts Theater for live performances, 48 restaurant and bars, 60 retail outlets and kiosks, a grade-B (not professionally managed and 50% backup power) eight-storey office building, and three hotels: Maxim Hotel (an all-suite luxury hotel), Marriott Hotel Manila (five-star hotel), and Remington Hotel (mid-range hotel).

The Company’s gaming facility is situated on three floors comprising an aggregate gaming area of 13,167 sq. m. which includes both VIP and Mass Market gaming areas. The VIP area comprises part of the second floor and the entire third floor of the gaming facility.

Resorts World Manila visitation statistics are as follows:RWM5

RWM visitation had been increasing since its commercial operations in 2009:RWM6

RWM is situated in an 11.5 hectare land which can be broken down as follows:RWM7

Phase 2 of Resorts World Manila is intended for Marriott Grand Ballroom as well as additional rooms through the Marriott West Wing. Marriott Grand Ballroom is designed to host exhibitions, conventions, weddings and other large-scale events. The major objective of the phase 2 expansion is to further increase visitation through the planned new non-gaming facilities which in turn is expected to increase the foot traffic for RWM’s gaming operations. Phase 3 expansion of Resorts World Manila is the inclusion of two new hotels (Hilton Manila and Sheraton Hotel Manila) and the expansion of Maxims Hotel which is expected to add additional 913 new rooms to an already existing 1,226 rooms.

The expansion of Phase 2 and 3 will legally permit the Company to increase gaming area to 17,955 sq. m. The Company will be able to add up to 285 gaming tables, 1,710 slot machines, and 1,710 electronic table game (ETG). Being a Philippine Amusement and Gaming Corporation (PAGCOR) Provisional License awardee, the Company is bound by a condition that only 7.5% of gross floor area will be for gaming operations.

In the past three years, RWM has maintained attractive profitability ratios in terms of returns on equity and profit margins:RWM8

Comments:

At an IPO price of P11.88 the Company will trade 27.75x PE ratio assuming that the Company will report flat growth in earnings.RWM9 RWM10

The 27.75x PE ratio is reflecting RWM’s past performance of high double digit growth which is an earnings growth of 50% and 40% in 2011 and 2012 respectively.

Assuming that the Company’s growth will align with the projected industry growth of the gaming industry of 16.4% from 2014 to 2020, we can expect RWM’s EPS to reach P1.24 (assuming no additional share issuance) or a decline in PE ratio of 27.75x to only 9.59x.

Disclaimer: I do not claim to be an expert and nothing I say should be taken as a recommendation to buy or sell. Read more in the ABOUT page.

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8 thoughts on “Making Sense of RWM IPO

    • Hello,

      Within 30 days of listing, I am certain that RWM share price will not go substantially below its IPO price. RWM has stabilizing agents. (see prospectus p. 3)

      Beyond that I have no idea where RWM’s price will go because i do not know if 27 x PE ratio is a proper valuation for gambling companies. in a simple glance it looks expensive but I admit that my current knowledge in the gambling industry does not allow me to forecast earnings confidently beyond 1 year.hehehehe

      renzie

      Reply
  1. Boss Renzie, any update on your blog? The valuation of RWM getting attractive at today’s closing, P9. What’s your take on this? (e.g. expected foot traffic update, possible relocation of airport as propsed bys SMC, gaming business as a whole). Thanks!

    Reply

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