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Casino-related stocks shed as much as 6%. Resorts World’s (RWB) (RNB MK,
Outperform) share price fell 5.9% yesterday on fears that a global flu pandemic could
affect tourism-related activities within the region. RWB’s parent, Genting (GENT MK,
Outperform) was not spared – its share price shed 5.7% while over in Singapore, its
54%-subsidiary, Genting International (GIL SP, Underperform) followed its parent on
the downtrend, falling 5.5%. GIL operates casinos in the UK.
What is swine flu? Suspected cases of a dangerous new strain of swine flu have
appeared around the world. It has killed up to 81 people in Mexico and spread to
neighbouring US and also Canada. The virus is an influenza that contains DNA from
avian, swine and human viruses, including elements from European and Asian swine
viruses, according to the US Center for Disease Control and Prevention. It is passed
on by sneezing, coughing or through touch. It probably originated in pigs though the
Mexican government and the World Health Organization have ruled out any risk of
infection from eating pork.
A negative for tourism-related activities. A virulent flu outbreak is generally
negative for tourism and services-related activities. For the gaming sector, the casino
sub-sector rather than the number forecast operators (NFOs) appears to be the direct
casualty as such outbreaks are likely to curtail travelling and induce people to stay
home. Also, given that the swine flu is passed on by sneezing, coughing or through
touch, people are likely to avoid public areas as well.
Impact on RWB and Genting. For RWB, this development is likely to reduce visitor
arrivals at its flagship Genting Highlands Resorts and, more importantly, casino
patronage. Given that the bulk of the resorts’ visitors are locals, the stepped-up
screening of inbound visitors by the Malaysian government should not pose a major
threat. For Genting, the impact is felt indirectly via its shareholding in RWB and GIL.
So far, the European Union has advised travellers to avoid areas affected by the
outbreak. Australia, Japan, Singapore and South Korea are among the countries
screening travellers for fever while Hong Kong has raised its swine-flu response level
to “serious” from “alert.”
How bad can it be, operationally? While generally a negative, the magnitude of
the impact on tourism-related activities depends on the duration and severity of the
outbreak. During previous pandemics such as the severe acute respiratory syndrome
(SARS) in 2002/2003 and the bird flu in 2005/2006, Genting Highlands’ visitor arrivals
did weaken (Figure 1). Visitor arrivals increased by only 1.2% in 2003 and fell 1.1% in
2006. RWB’s revenue dropped 2.6% yoy during the SARS period but there were no
signs of stress during the bird flu outbreak in 2005/2006.