Landmrk's Indonesia casino project in trouble?

The Star newspaper reported on Saturday that fresh doubts had arisen over Landmrk's Indonesia casino project in Bintan (go here). The Star quoted a report, which appeared on Thursday in a Singapore newspaper, the Straits Times, where an Indonesia official in charge of development planning in Bintan as stating that the casino plan was rejected "a long time ago".

Now, who is telling the truth here? Firstly, the relevant authority in Bintan had designated the land owned by Bintan Treasure Bay Pte Ltd as an international Exclusive Integrated Tourism Zone (EITZ) in January this year. It had also zoned the land for medical tourism, gaming and information technology hosting (go here). Thereafter, Landmrk proposed to increase its stake in Bintan Treasure Bay (the developer of the integrated resorts in Bintan where casino will be operated) from 74% to 100% in February. Landmrk will be paying RM360 million for this additional 26% in Bintan Treasure Bay as compared to RM400 million paid last year for the earlier 74%.

This report highlights the political risk of doing business in Indonesia. One only has to look at the problems faced by Astro & MSC to see that a company operating there will face a myriad of conflicting laws & regulations. To make matter worse, Landmrk is getting in a business which is regarded as illegal in the predominantly Muslim society. However, the community must also weigh the benefits from such a project. The integrated resorts, which will generate employment & tourist revenue, may not proceed as planned, without the casino operation.

From the weekly chart below, we can see that Landmrk has dropped from its high of RM2.60 in November last year to a low of RM1.69 in March- losing a whopping RM1.91 in just 5 months. Could the share be dropping ahead of uncertainty over whether Landmrk would get the casino license?

The share price then rebounded from the low of RM1.69 to a recent high of RM2.60 last Thursday (on April 17th). That's a 91 sen (or, 48%) recovery of the loss of RM1.91. Such a rapid recovery could lead to profit-taking at this juncture, with or without a bad news such as those reported in the newspaper. Based on the chart, I believe that the share price of Landmrk may drift lower until the problem has been satisfactorily addressed. I see support at RM2.00 and RM2.15.


Chart: Landmrk's weekly chart as at April 18, 2008 (courtesy of Quickcharts)