Investment Highlights

• We are keeping our HOLD recommendation on Genting Bhd with a lower RNAV-based fair value of RM9.35/share compared with RM9.60/share originally. This is to account for Genting Singapore’s (GenS) new fair value of S$1.20/share vs. S$1.28/share previously. GenS accounts for about 42% of Genting Bhd’s RNAV.

• Genting Bhd's 1HFY18 results were above our expectations but below consensus estimates. We have raised our FY18F net profit forecast for Genting Bhd by 14.5% to account for our earnings revision for GenS.

• Genting Bhd's leisure and hospitality EBITDA climbed by 7.4% YoY to RM3.46bil in 1HFY18 on the back of higher earnings from Genting Malaysia (GenM) and Genting Singapore (GenS). These helped compensate for a 12.8% YoY drop in earnings from the plantation unit in 1HFY18. Recall that Genting Plantations’ 1HFY18 net profit was affected by the slump in palm product prices.

• The leisure and hospitality division (mainly casino activities) accounted for 85% of Genting Bhd’s EBITDA in 1HFY18 while plantation, property, oil and gas, and power made up the balance 15%. Within the leisure and hospitality unit, GenS was the main earnings driver, accounting for 54.5% of EBITDA in 1HFY18. GenM accounted for another 39.6% of the leisure and hospitality EBITDA in 1HFY19 while the US and UK made up the balance 5.9%.

• We understand that so far, GenM has not faced any major change in its casino operating environment after the general election in Malaysia in May 2018. On the gaming side, the new sales and services tax (SST) will replace the GST of 6%. Hence, there is no impact. However on the nongaming segments such as restaurants and hotels, there may be some impact from the new SST. GenM is still assessing the impact of this.

• The 20th Century Fox theme park is expected to open in 1HFY19 instead of 1QFY19 originally. The delay in the opening of the outdoor theme park at Resorts World Genting is due to strict controls and slow approval process from 20th Century Fox in the US. We understand that the physical structure of the outdoor theme park is up and GenM is currently testing the rides.

• In spite of the delay in the opening of the outdoor theme park at Resorts World Genting, GenM has started hiring people to be trained as technicians for the rides. This is expected to increase staff costs and erode operating profit margins in 2HFY18.

Source: AmInvest Research - 30 Aug 2018