Results

• GenM reported 1HFY15 core PATAMI of RM597.4m came in below expectations, accounting for 37.7% and 42.8% of ours and consensus’ estimates, respectively.

Deviations

• Higher-than-expected COGS.

Dividends

• Declared an interim single-tier dividend of 2.8 sen per share (2Q14: 3.0 sen) which goes ex on 28 Sept.

Highlights

• Operations in Malaysia experienced higher revenue yoy in 2QFY15 (+3.8%) mainly contributed by higher volume of business, partially offset by lower hold percentage in the premium players business as well as GST impact. However, Malaysia’s EBITDA showed a decline of 5.8% due to higher costs relating to premium players business.

• The first offering for Phase 1, the new 1,300-room First World Hotel Tower 2A, is now fully opened. Other attractions and facilities of the GITP are expected to be opened in phases from 2HFY16 onwards.

• The recently announced MTN of RM2.4bn is earmarked for almost half of GITP cost. Management believes that this is a balanced funding structure to boost ROE. Also, GITP CAPEX remains largely unchanged at RM5.0bn.

• UK’s 2QFY15 revenue yoy was impacted by weaker hold percentage and lower volume of business of its International Markets. 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.

• Management is not perturbed by the recent drastic FOREX movement as its foreign currency debts are matched with respective foreign operation cash flows.

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

• Tweaked our model based on the deviations above. In turn, this has led to downward revision of our FY15-16 EPS by 9.7% and 10.2%, respectively.

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

• Reiterate HOLD after lowering our fair value by 7.2% from RM4.16 to RM3.86, mainly to reflect the downward earnings revision, based on SOP.

Source: Hong Leong Investment Bank Research - 27 Aug 2015