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PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 20 Jun 2019, 10:04 AM

 

Genting Malaysia Berhad - Dragged By Outdoor Theme Park Provision

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Genting Malaysia (GENM) reported RM268.3m net profit for 1QFY19, down 25.1% YoY mainly due to the provision of costs as a result of contract terminations relating to the outdoor theme park, amounting to RM198.3m. The impact was partly offset by a gain of disposal of UK casino, Coastbright Ltd, amounting to RM123.8m. Malaysia’s leisure & hospitality segment delivered a 4% EBITDA growth as the impact of strong revenue growth of 19% was mostly offset by higher casino duties. At adjusted EBITDA level, the results were slightly above our estimates, accounting for 26% of our full-year forecast. We maintain our earnings forecasts and Underperform rating with an unchanged TP of RM2.70.

  • 1QFY19 revenue jumped 14% YoY to RM2.7bn. Malaysia’s leisure & hospitality business posted a 19% growth due to exceptionally high hold percentage in the mid to premium players segments. However, the overall business volume was lower due to reduction in incentives offered to the players as part of the cost rationalization initiatives. The US & Bahamas business delivered a 6% growth largely due to impact of stronger USD. Excluding forex impact, revenue from US & Bahamas increased by only 2%.
  • 1QFY19 net profit dropped 25.1%, mainly due to a provision amounting to RM198.3m in relation to the termination of contracts for the outdoor theme park at Resorts World Genting. However, this was partly offset by a gain of RM123.8m arising from the disposal of Maxims casino in Kensington, London. At adjusted EBITDA level, Malaysian operations only managed to chalk 4% growth as the impact of strong revenue growth was offset by higher casino duty. The Malaysian segment remained the largest profit contributor, accounting for 81% of group’s adjusted EBITDA.
  • Maintain Underperform. We believe the on-going lawsuit between GENM and the Twenty-First Century Fox group of companies would delay the opening of GENM’s outdoor theme park that was initially scheduled to take place by 1H2019. The theme park is deemed to be the crowd puller to Resorts World Genting. Without it, we reckon visitor arrival growth rate would be affected. Meanwhile, the amendment to tax incentives granted to GITP previously could effectively prolong the utilization period of the tax allowances. However, at this juncture, GENM has been granted leave to commence judicial review of the Ministry of Finance’s decision to amend the terms of the tax incentives. Hence, it remains uncertain if GENM’s earnings would be adversely affected as the impact is dependent on the result of the judiciary review.

Source: PublicInvest Research - 24 May 2019

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