Results

• 1QFY16 core PATAMI of RM343m was in line with expectations, accounting for 26.7% and 25.2% of both our and consensus full year estimates, respectively.

Deviations

• None.

Dividends

• None.

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 GST impact. With the newly opened Tower 3 of First World Hotel, number of visitors has risen while occupancy rate remains high around 90%.

• Continued improvement in UK operations with higher revenue from higher hold rate from premium players business and favourable forex movement despite overall lower volume. Higher bad debt recovery from previous bad debts written off helped. Resorts World Birmingham (RWB) was still at operating loss given that it was just fully opened in 4Q16.

• Stable performance from the US and Bahamas operations contributed by higher volume from Resorts World New York (RWNYC) but was offset by lower volume from RWBimini amid cessation of Bimini Superfast cruise ferry operations. Second half improvement can be expected with the Hilton Hotel fully open by end of June.

• It is worth noting that net profit was affected by the unrealised forex losses of RM138.8m of the Group's USD denominated assets recorded in its non-core Investment & others segment as a result of strengthening RM in 1Q16.

• The much awaited GITP is poised to ramp up its 1st phase opening consists of Sky Avenue (retail space) and new cable car system by 2H2016. Higher visitor arrivals are expected by then to provide a re-rating catalyst from the additional number of gaming tables targeted to open end of the year.

• However, larger pre-opening expenses are expected in upcoming quarters while stabilized overseas operations are still found wanting.

Risks

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

Forecasts

• Unchanged.

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 unchanged TP of RM4.08 based on SOP derived value.

Source: Hong Leong Investment Bank Research - 25 May 2016