Results

• GenM reported FY14 revenue and core EBITDA (RM8.3bn and 2.4bn respectively) was in line with expectations but core PATAMI of RM1.4bn came in above expectations, accounted for 112.0% and 107.5% of HLIB’s and consensus’ full year earnings.

Deviations

• Lower-than-expected depreciation and amortization costs as well as net interest; partially offset by higher-than-expected effective tax rate.

Dividends

• Declared final dividend of 3.5 sen/share, totaling FY14 dividends to 6.5 sen/share (FY13: 8.2 sen/share). This is in line with our forecasts of 6.6 sen/share.

Highlights

• Operations in Malaysia experienced lower revenue in FY14 mainly due to lower hold percentage in its VIP business despite higher volume of business. Malaysia’s EBITDA declined as well due to lower revenue contribution and higher payroll costs.

• The group has successfully opened 1/3 of its 1,300 new hotel rooms in end-2014 and has received positive feedbacks from customers. GenM will open its remaining rooms by mid-2015.

• UK’s FY14 revenue was impacted by weaker hold percentage in its London casinos albeit experiencing higher volume of business. EBITDA however improved on the back of lower bad debt written off.

• Despite the operational challenges for Resorts World Bimini (RWB), revenue grew 6.2% from full commencement. US bottomline was impacted by the loss in RWB due to operational challenges, while lower EBITDA in Resorts World New York (RWNY) was attributable to higher payroll costs.

• We understand that the group would be absorbing GST next year as it would not be able to pass it on to customers. To mitigate the potential higher costs post-GST, the group is currently reviewing its costs in other areas with hopes to protect margins (such as improving the group’s productivity and efficiencies).

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

• Unchanged as we have earlier imputed in potential return of visitations post-opening of its new hotel.

Rating

HOLD

Positives

• (1) Defensive stock; (2) Monopoly in thedomestic industry; and (3) New source of earnings from international markets to drive earnings growth

Negatives

• (1) Highly regulated industry; and (2) earningshighly dependable on luck factor and hold percentage

Valuation

We are keeping our target price of RM4.16 based on FY15’s SOP valuations and HOLD recommendation unchanged.

Source: Hong Leong Investment Bank Research - 27 Feb 2015