Results

• GenM reported 1QFY14 core PATAMI of RM349.8m came in within expectations, accounting for 28.0% and 24.5% of ours and consensus’ estimates, respectively.

• To note, 1Q usually accounts for approximately 26-30% of its full year earnings.

Deviations

• None.

Dividends

• None.

Highlights

• Operations in Malaysia experienced higher revenue yoy in 1QFY15 (+2.3%) mainly contributed by higher volume of business, partially offset by lower hold percentage in the premium players business. On the other hand, Malaysia’s EBITDA showed a decline of 3.6% due to higher payroll costs and costs relating to premium players business.

• The group plans to open the remaining hotel rooms (>800 rooms) in First World Hotel Tower 2 Annexe mid-FY15. Upon full opening, the highlands would have an additional 1,300 rooms.

• UK’s 1QFY15 revenue yoy was impacted by weaker hold percentage in its London casinos (VIP market), coupled with lower volume of business in its London casinos. EBITDA saw further decline yoy due to higher bad debts written off during the quarter.

• Revenue in the US was higher, thanks to higher volume of business in Resorts World New York (RWNY) and Resorts World Bimini (RWB). EBITDA also improved from lower payroll costs in RWNY, partially offset by narrower loss in RWB.

• Although we understand that GenM would need to absorb the GST post-implementation, management shared that spending per headcount in the casino remained strong. Hence, we believe that impact could potentially be minimal as long as visitations remain strong.

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.

Rating

HOLD

Positives

• (1) Defensive stock; (2) Monopoly in the domestic 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

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 - 29 May 2015