Results

GenM reported 9MFY13 core PATAMI of RM1,307.6m was in line, accounting for 74.2% of our full year forecasts. As compared to consensus, GenM’s results were above expectations (80.6% of full year earnings).

Deviations

None.

Dividends

None. GenM declares dividends semi-annually.

Highlights

YTD: Revenue saw an increase of 4% on the back of growth recorded by all its casinos (Malaysia, US and UK), as well as the commencement of GenM’s Resorts World Bimini (RWB) on 28 June 2013.

PBT however experienced a slower growth due to several reasons: 1) lower margins from Malaysian operations due to higher operating expenses; 2) higher bad debts written off by UK casinos; and 3) loss by RWB. These were partly mitigated by lower operating expenses at Resorts World New York. PATAMI improved further from the lower effective tax rate.

Resorts World Genting’s hotel, theme park and F&B division saw a decline in visitor arrivals, largely due to the closure of its outdoor theme park in Sept 2013 (to make way for transforming it into a world-class attraction).

In the meantime, marketing strategies have been put in place to grow the mid and premium segment of the business. The group remains focused on yield management strategies and further enhancing operational efficiencies.

Resorts World Bimini (RWB) has commenced operations in end-June and the group is still monitoring its patronage patterns. The hotel development in the resort is on-going with expected completion date in 2QFY14. Total investment costs incurred for RWB so far amounted to US$180m.

The development in Resorts World Birmingham is on track and the group is looking forward to its opening in FY15.

Going forwards, GenM shared that growth momentum in visitorships would likely continue. The Visit Malaysia Year 2014 initiative would augur well in boosting tourism arrivals and receipts.

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 New York not approved.

Forecasts

None.

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

Recommendation and TP remained unchanged at HOLD and RM4.28 based on SOP valuations, respectively

Source:Hong Leong Investment Bank Research- 29 Nov 2013