• Maintain SELL on Genting Malaysia (GenM) with an unchanged RNAV-based fair value of RM5.20/share. GenM is currently trading at FY18F PE of 20.3x and FY19F PE of 19.0x.

• The depreciation of GBP against MYR and economic uncertainties over Brexit may affect GenM's earnings going forward. Since the UK election on 8 June 2017, the GBP has fallen by 2.6% against the MYR.

• We estimate that a 5% decline in the GBP would reduce the contribution of the UK unit by 5% to 6% when the earnings are translated into MYR. GenM's FY18F net profit would inch down by 1%-2%.

• The leisure and hospitality unit in UK accounted for 22.6% of GenM's pre-tax profit in 1QFY17 and 14.3% in FY16.

• Apart from the depreciation of the GBP, we reckon that consumer sentiment and confidence in UK may be affected by economic uncertainties arising from Brexit. This may have an effect on casino visitation and spending in UK.

• We have not factored these risks into GenM's FY18F earnings forecast yet. We forecast EBITDA of GenM's UK division to improve by 4% in FY18F.

• GenM's earnings in UK consist of contribution from the casinos in London, casinos in the various provinces and Resorts World Birmingham.

• GenM's casinos in London recorded a 33% YoY drop in revenue in GBP in 1QFY17 due to a lower win percentage. Casino attendances rose by 5% while the volume of business improved by 8%.

• Revenue of the casinos at the provinces fell by 4% YoY in GBP in 1QFY17 as casino attendances declined by 6%.

• Resorts World Birmingham's revenue improved by 35% YoY to £8.5mil in 1QFY17. Resorts World Birmingham's loss narrowed from £2.6mil in1QFY16 to £1.0mil in 1QFY17.

• On a quarterly basis, Resorts World Birmingham's EBITDA swung from a positive £2.3mil in 4QFY16 to a loss of £1.0mil in 1QFY17.

Source: AmInvest Research - 14 Jun 2017