Results

GenM reported FY13 core PATAMI of RM1,713.6m was in line, accounting for 97% of our full year forecasts. As compared to consensus, GenM’s results were above expectations (107% of full year earnings).

Deviations

None.

Dividends

Declared final dividend of 3.90 sen/share which totals FY13’s dividend declared to 8.2 sen/share. This came below our estimates of 11.5 sen/share for FY13. Highlights

FY13: GenM experienced revenue growth of 6% yoy from higher volume of business across all its subsidiaries (Malaysia, US and UK). Do note that FY13 also includes the commencement of Resorts World Bimini in June 2013.

Adjusted EBITDA for FY13 was slightly lower yoy due to the lower EBITDA from Malaysian operations which was dragged down by higher payroll costs due to the implementation of minimum wage ruling in mid-2013 as well as the contributions in support of the group’s social responsibility efforts (RM68.7m). The lower EBITDA in Malaysia was partially offset by higher EBITDA recorded by US and UK operations.

For FY14, the group maintains its positive stance on the longer term outlook for the leisure and hospitality industry. GenM will be embarking on new indoor activities, in effort to mitigate the losses from the closure of its outdoor theme park.

As UK’s casinos continue to grow its momentum despite the ongoing financial austerity measures, GenM is confident in further growing the premium players business. The construction of Resorts World Birmingham is progressing well and is projected to open by mid-2015.

Over in the US, more efforts will be undertaken in order to further increase RWNY’s visitations and grow its customer database. In Miami, GenM is progressing with a mixed-use development plan at the former Miami Herald site.

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

We tweaked our dividend payout assumption lower to 30% and increased our RWNY’s net wins assumption to US$438/VLT/day from the strong net wins in FY13. Hence, FY14-16 EPS is marginally higher by 0.8%.

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

Post-earnings revision, TP is raised slightly to RM4.49 (from RM4.48) based on SOP valuations. Maintain HOLD.

Source: Hong Leong Investment Bank Research- 28 Feb 2014