Investment Highlights

• Maintain SELL on Genting Bhd with an unchanged RNAVbased fair value of RM9.65/share. Genting Bhd is currently trading at FY17F fully diluted PE of 23.3x and FY18F fully diluted PE of 23.2x.

• Genting Bhd's 1HFY17 net profit was within our earnings forecast and consensus estimates as better-than-expected earnings from Genting Singapore (GenS) were offset by weaker profits from Genting Malaysia (GenM) and Genting Plantations (GenP). GenS benefited from a higher VIP win rate and lower impairments on trade receivables in 1HFY17. On the other hand, GenM's Malaysia earnings were affected by an increase in payroll costs and a lower win percentage in the premium mass business.

• Singapore accounted for 56.3% of Genting Bhd's leisure and hospitality EBITDA in 1HFY17. This was followed by Malaysia (36.0%), the UK (3.5%) and US (4.2%).

• GenM will only assess the viability of the Mashpee First Light Casino and Resort project in Massachusetts at the appropriate time. The group declined to comment on the potential impairment cost of the project. Recall that GenM has invested US$347.4mil in the promissory notes issued by the tribe to finance the casino project. The project hit a snag this year due to opposition from the citizens in the area.

• EBITDA margin of Resorts World Genting, Malaysia is expected to decline from the usual 35% to 33% in FY17F due to higher payroll and energy costs. We understand that the group recruited additional staff to operate and manage the new attractions at the highlands resort in 1HFY17. The new staff had to undergo one-month training before the opening of the attractions. Payroll costs are only expected to normalise in one year's time.

• The VIP section of SkyCasino at Resorts World Genting, Malaysia is expected to open in 3QFY17. The indoor theme park and its retail space may open before Chinese New Year in FY18F. The outdoor theme park may open between 2QFY18 and 4QFY18.

• We understand that GenM's strategy is to market the new attractions at Resorts World Genting in FY17F to Malaysian customers as they are the higher-yielding clientele. Hence, hotel rooms have been allocated to more Malaysian customers instead of tourists from China. Hotel guests from China dropped by 23% YoY in 2QFY17 and 16% YoY in 1HFY17. GenM would start marketing to Chinese customers when more attractions are opened in FY18F.

Source: AmInvest Research - 25 Aug 2017