Results

• GenM reported 1HFY16 core PATAMI of RM767.6m (+34.1% yoy), above our and consensus’ estimates at 60.4% and 56.5%, respectively.

Deviations

• Core profit was largely in-line except for lower than expected interest cost, higher than expect interest income and lower effective tax rate.

Dividends

• None.

Highlights

• Yoy & Qoq, higher income recorded from all operations except from property and others segments and slight drop qoq for UK operations.

• YTD, EBITDA up by 6% driven by higher revenue from all segments and lower operation cost resulting from cost realization exercises, except for Resorts World New York (RWNYC) and RWBimini (Bimini) operations.

• Malaysia operation recorded a healthy EBITDA margin of 35% on the back of improved hold rate, partially offset by lower volume overall; on hold-normalized basis, EBITDA would have retreated by 5% yoy.

• However, UK operations recorded higher revenue (+70% yoy), turning EBITDA around to RM191m YTD, thanks to its revised marketing strategies, higher hold rate from premium players business, bad debt recovery and favourable forex movement despite overall lower volume.

• Higher volume was achieved from RWNYC with more than 500 additional Video Gaming Terminals being added this year. However Bimini was still at a loss with the cessation of ferry operations; improvement shall be seen with the Hilton Hotel now fully opened coupled with aggressive marketing efforts.

• It is worth noting that the “investment and other” segment, there was no dividend income received from Genting HK due to loss making results reported. Genting HK contributed RM53.4m last year.

• Management shared that the progress for much awaited GITP is on track with cable car system, retails spaces, facilities and gaming tables to be rolled out by stages.

Risks

• Regulatory risk; Weaker hold percentage;

• Cannibalization from Macau & Singapore; Execution risk

Forecasts

• We revise our forecast assumption on UK contribution, investment & others, interest income and interest cost, resulting in an increase of our FY16 & FY17 bottomline by 10.5% and 6.08%, respectively.

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 higher TP of RM4.50 from RM4.48 based on SOP-derived valuation.

Source: Hong Leong Investment Bank Research - 26 Aug 2016