Results

Reported 1QFY13 core net profit of RM423.3m came in line with our full year forecasts. However, stripping of the CSR contribution of approx. RM68.7m and normalizing tax rate, core net profit of RM396.3m would be in line with ours and consensus full year estimates.

Deviations

Lower-than-expected effective tax rate.

Dividends

None

Highlights

Group’s revenue fell 2% yoy mainly due to lower revenue from the casino business in UK (-23.2%), partially offset by higher revenue from Malaysia (+2.5%) and US (+3.6%) operations.

Core Earnings grew substantially yoy (+47.3%) on the back of lower tax rate of only 6.34% due to tax incentives and recognition of previously unrecognized tax losses in the US.

Mass market in the highland casino continued to show stable growth in both volume and hold rate. Management is expecting volume to grow from the additional gaming floor expansion to the “Pavilion” in First World Hotel.

Operations in the UK continued to face volatility issues given that its revenues are still mainly driven by VIP players.

Over in the US, RWNY continues to churn impressive earnings growth, with average net wins/machine at US$417 as at 1QFY12, recording a growth of 15.8% growth yoy (1QFY12: US$360).

There were no further updates on the legislations proposed in New York and Miami on full-scale gaming casinos in the state.

For the prospects going forward, GenM will tap the expanding regional market and continue to grow the international premium players business. In the UK, the group will continue its refurbishment programme for its London and provincial casinos. In the US, GenM remained optimistic with its US expansion plans, which will gather momentum with the opening of Resorts World Bimini Bay (RWBB) in 3QFY13.

Risks

1) Regulatory risk; 2) Weaker hold percentage; 3) Pandemic breakouts; 4) Cannibalization from Macau & Singapore; 5) Appreciation of RM and 6) Bill on full gaming operations in RWNY not approved.

Forecasts

Largely unchanged.

Rating

HOLD

• Positives – (1) Defensive stock; (2) Monopoly in the industry; and (3) New source of earnings from international markets to drive earnings growth
• Negatives – (1) Highly regulated industry; and (2) earnings highly dependable on luck factor and hold percentage

Valuation

• TP remained unchanged at RM4.10 based on SOP valuation. However, we downgrade GenM to HOLD as total return now is less than 10%.

Source: Hong Leong Investment Bank Research - 31 May 2013