Results

• GenM reported FY15 core PATAMI of RM1,412.5m, in line with both our estimate and consensus’ estimates at 103.4% and 104.9%, respectively.

News

• GenM announced additional RM5.38bn of capital investment under the 10-year GITP master plan.

Deviations

• None.

Dividends

• Proposed a dividend of 7.1 sen comprises of interim singletier of 2.8 sen + final single-tier of 4.3 sen, yielding 1.6%.

Highlights

• Consistent performance from Malaysia operation with healthy EBITDA margin of 35% on the back of improved volume, partially offset by lower hold percentage and higher costs relating to premium players, higher payroll costs and GST impact. On hold normalized adjusted basis, overall EBITDA would have increased by some 15%.

• Improvement in UK operations with higher revenue from non-premium players business and favourable forex movement in 4Q. However, full year results were eroded by lower sales, higher bad debts written off and full year preopening expenses from Resorts World Birmingham (RWB) amounting to GBP9.5m.

• Significant improvement in the US and Bahamas operations contributed by newly opened Hilton Hotel (grand opening in mid-2016), favourable forex movement and lower payroll costs from RWNY operations. While still finding its footing, management is expecting RWBimini to be profitable by 2HFY16.

• Additional capex of RM5.38bn for GITP was announced, bringing the total capex to RM10.38bn. RM8.11bn is allocated for phase 1 in which the additional RM4bn will be invested in coming 2-3 years and the remaining is for phase 2. Bulk of the investment is for the much-awaited 20th Century Fox theme park which will cost over RM2bn (details in Figure #1).

• Now with Tower 3 of First World Hotel fully opened coupled with the impending opening of Sky Avenue (retail space) to be opened in 2H2016, more visitors arrivals are expected, but volatile overseas operations may continue to be a drag.

Risks

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

Forecasts

• We factor in additional capex on GITP, higher depreciation and upward revision to visitors’ arrivals assumption into our SOP model.

Rating

HOLD

Positives

• (1) Defensive business; (2) Monopoly in the industry; and (3) new and potential sources of earnings growth from international markets expansion.

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 RM4.08 from RM4.14 based on SOP derived value after incorporating latest net cash position.

Source: Hong Leong Investment Bank Research - 24 Feb 2016