Results

• GenM reported 9MFY15 core PATAMI of RM919.3m, below our expectations but in line with consensus estimate (50.1% and 80.8% of ours and consensus’ estimates, respectively ).

Deviations

• Lower volume and overall EBITDA margin especially in UK operations.

Dividends

• -

Highlights

• Overall, Malaysia operation was stable with healthy EBITDA margin of 35% and improved volume on the back of lower costs to premium players (thanks to GenM's cost rationalization plan coupled with data mining capabilities to strategies target players), partially offset by higher costs relating to premium players and GST impact.

• YTD, there is still no sign of improvement from UK casino operations due to lower revenue from International Markets and higher bad debt written off. We expect the newly open Resorts World Birmingham (RWB) to mitigate somewhat the existing weak UK operations.

• Revenue was higher by 27% yoy on the back of newly opened Hotel in Resorts World Bimini while contribution from Resorts World New York remained stable.

• EBITDA (+4.3% to RM1.64bn) was also buoyed by favourable foreign exchange gain on investments & assets during the quarter (+RM301.3m).

• On exceptional items, there were one-off write-off of deferred expenses of RM137.1m by Bimini operat ions and pre-opening expenses of RM 32.2m RWB and Genting Integrated Tourism Plan (GITP).

Risks

• Regulatory risk;
• Weaker hold percentage;
• Cannibalization from Macau & Singapore;
• Execution risk

Forecasts

• In view of the prolonged unfavourable outlook in the UK segment, we revise lower our revenue forecast for FY15 & FY16 by 9% and 6% and PATAMI forecast by 23% and 15% respectively.

Maintain HOLD with lower TP of RM4.06, factoring in continued loss making from UK operations and lower margin from US operations.

Rating

HOLD

Positives

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

Negatives

• (1) Highly regulated industry; (2) earnings highly dependable on luck factor and hold percentage; and (3) unstable overseas operations

Valuation

• Maintain HOLD with lower TP of RM4.06 from RM4.35 based on SOP.

Source: Hong Leong Investment Bank Research - 27 Nov 2015