Investment Highlights

• Maintain SELL on Genting Malaysia (GenM) with an unchanged RNAV-based fair value of RM5.20/share. GenM is currently trading at FY17F PE of 26.6x and FY18F PE of 23.3x.

• We have revised GenM's FY17F net profit downwards by 15.9% to account for various impairments and write-offs, and weak earnings in the Malaysia unit.

• GenM’s 1HFY17 core results were below our expectations and consensus estimates. Apart from unimpressive operational numbers, GenM was affected by forex losses on USDdenominated assets, impairment of RM36.8mil in respect of the Bahamas operations and write-off of project costs amounting to RM16.9mil. Effective tax rate also surged from 14.4% in 1QFY17 to 29.7% in 2QFY17 mainly due to a deferred tax charge in the US operations of RM12mil.

• GenM's EBITDA fell by 7.1% YoY to RM998.4mil in 1HFY17 dragged by a 5.7% decline in the Malaysia division and a 40.8% fall in the UK earnings. EBITDA of the US unit (Miami, the Bahamas and New York) improved by 100.3% YoY to RM134.2mil in 1HFY17.

• The leisure and hospitality division in Malaysia suffered higher operating expenses in 1HFY17 resulting mainly from an increase in the number of staff for the opening of new attractions at Resorts World Genting. As a result, EBITDA margin of the unit shrank from 34.8% in 1HFY16 to 31.2% in 1HFY17. Revenue of the Malaysia division grew by 5% YoY in 1HFY17.

• The number of visitors at Resorts World Genting, Malaysia improved by 5% to 10.2mil in 1HFY17 on the back of the opening of SkyAvenue Shopping Mall, Genting Premium Outlet and SkyCasino. Comparing 2QFY17 against 1QFY17, the number of visitors rose from 4.8mil to 5.4mil.

• The volume of casino business at Resorts World Genting, Malaysia improved YoY in 1HFY17 due to the opening of SkyCasino in March 2017. In spite of this, casino revenue was affected by a lower win percentage in the mid-to-premium mass market.

• The volume of business in the VIP and mass market segments in Malaysia increased by single-digit percentage YoY each in 1HFY17. VIPs accounted for 41% of gross gaming revenue in 1HFY17, which was similar to 1HFY16.

• EBITDA of the UK division dived 40.8% YoY to RM113.4mil in 1HFY17 dragged by lower win percentage and a fall in the volume of business at the casinos in London and provinces. Resorts World Birmingham recorded a smaller loss of £800,000 in 1HFY17 vs. £3.3mil in 1HFY16.

Source: AmInvest Research - 25 Aug 2017