Investment Highlights

• Maintain SELL on Genting Malaysia (GenM) with a lower RNAV-based fair value of RM5.20/share vs. RM5.40/share previously. GenM is currently trading at FY17F PE of 22.6x and FY18F PE of 22.0x.

• GenM’s 1QFY17 core results were below our expectations and consensus estimates. We have reduced GenM's FY17F net profit by 12.4% to account for higher depreciation expense and lower visitor arrivals at Resorts World Genting.

• GenM's pre-tax profit growth of 31.4% YoY in 1QFY17 was driven mainly by the absence of forex losses of RM130mil, which took place in 1QFY16. The group's leisure and hospitality EBITDA shrank by 2% YoY in 1QFY17 due to a 3.2% drop in the earnings of the Malaysia division and 21.3% fall in the UK unit.

• EBITDA of the Malaysia unit declined by 3.2% YoY in 1QFY17 dragged by higher costs incurred for the premium player segment and an increase in operating expenses. If not for the higher win percentage in the premium player segment, EBITDA of the Malaysia unit would have contracted by a sharper 13% in 1QFY17. Cost of wages rose in 1QFY17 as GenM recruited additional 1,000 workers for the opening of new attractions at Resorts World Genting.

• In spite of the opening of the SkyAvenue Shopping Mall in December 2016, the number of visitors at Resorts World Genting slid by 3% to 4.81mil in 1QFY17. Average hotel occupancy rate was 90% in 1QFY17 against 89% in 1QFY16.

• Volume of casino business at Resorts World Genting fell YoY in 1QFY17. Volume of business in the mass market segment in Malaysia edged down by single-digit percentage YoY in 1QFY17 while volume of business in the VIP segment was marginally higher. VIPs accounted for 42% of gross gaming revenue in 1QFY17 vs. 41% in 1QFY16.

• EBITDA of the UK gaming division declined by 21.3% YoY to RM77.7mil in 1QFY17 on the back of a weaker GBP vs. MYR and a lower win percentage at the casinos in London. Casino attendances in London casinos improved by 5% YoY in 1QFY17 while the volume of business at the provincial casinos eased by 6% in 1QFY17.

• Losses at Resorts World Bimini narrowed from US$18.6mil in 1QFY16 to US$17.2mil in 1QFY17. Resorts World Bimini is expected to swing into the black in FY19F.

Source: AmInvest Research - 30 May 2017