Investment Highlights

• Maintain SELL on Genting Malaysia (GenM) with an unchanged fair value of RM4.95/share. GenM is currently trading at FY18F PE of 24.8x and FY19F PE of 21.8x.

• GenM has declared a final gross DPS of 13 sen for 4QFY17, which brings total gross DPS to 17 sen in FY17 (FY16: 16.5 sen). We forecast a gross DPS of 18 sen for FY18F, which implies a yield of 3.4%.

• GenM did not make any provision for its US$368mil investment in the promissory notes issued by the Mashpee tribe in FY17. The proceeds from the promissory notes are supposed to be used to finance the First Light Casino and Resort project in Massachusetts. We believe that GenM is waiting for the Interior Department in USA to make a decision on whether the project can proceed.

• GenM's FY17 results were within consensus estimates but above our earnings forecast. After a weak 3QFY17, which was dragged by a low win percentage in the casino segment in Malaysia, GenM's EBITDA rebounded by 68.2% QoQ in 4QFY17. The improvement in EBITDA in 4QFY17 was underpinned by an improved casino win rate and higher volume of business from the mass market segment.

• Comparing FY17 against FY16, GenM's net profit fell by 59.7% due to the low casino win percentage, increased operating costs due to the opening of new attractions and higher VIP costs in Malaysia. The decline in net profit in FY17 came in spite of new casino areas, which opened at Resorts World Genting in March and August 2017.

• We understand that if the casino win percentage had normalised, EBITDA of the Malaysian division would have risen by 10% YoY respectively in FY17.

• The number of visitors at Resorts World Genting, Malaysia rose by 16.8% to an estimated 23.6mil in FY17. About 70% of the visitors were day-trippers in FY17. Comparing 4QFY17 against 3QFY17, the number of visitors increased by 17.1% to 6.7mil.

• The volume of VIP business increased by 15% YoY in FY17 while the revenue of the mass market business grew by 8%. In contrast, the volume of the mass market business fell by single-digit percentage in FY16. Underpinning the growth in the volume of casino business was the opening of the mass market floor of SkyCasino at Resorts World Genting in March and premium mass space in August 2017.

• New attractions opening at Resorts World Genting in FY18F are the indoor theme park and the 20th Century Fox Theme Park. The indoor theme park is expected to open fully by 1HFY18 while the 20th Century Fox Theme Park is envisaged to open at end-FY18F.

Source: AmInvest Research - 28 Feb 2018