Results

• GenM reported 9MFY16 core PATAMI of RM1.2bn (+61.7% yoy), above our and consensus estimates at 86.4% and 88.4%, respectively. However, EBITDA level was below expectations at 70.1% and 70.5%, respectively.

Deviations

• Core profit was above expectations due to the tax relief allowable under the capex for GITP; meanwhile EBITDA was lower due to lower than expected contribution from RWG and US operations.

Dividends

• None.

Highlights

• Yoy, higher revenue recorded from all operations except from property and others segments. Core PATAMI was up by 151.1% mainly due to the allowable tax incentive and improved performance from UK and US operations.

• Qoq, bottom-line was slightly lower by 0.5%, affected by weaker performance from all operations except in Malaysia, mainly due to lower business volume, higher opex and forex effect; despite favourable tax credit of RM12.5m recognized.

• YTD , core PATAMI up by 61.7% driven by improvements from overseas operation especially UK and significant tax relief in this quarter; while Malaysia operations remained flat.

• RWG recorded lower adjusted EBITDA margin at 34% (vs 37% last year) resulting from higher opex for premium segment, mitigated by higher revenue resulting from higher win rate for premium business. Overall volume was down despite higher visitors’ arrival by 7% yoy. On hold normalized basis, EBITDA would have down by 23% yoy.

• UK operations continued its improved performance with EBITDA of RM42m compared to LBITDA of RM 87m yoy, helped by higher hold rate from premium players business despite overall drop in volume, and bad debt recovery compared to bad debt written off last year.

• Management shared that the progress for much awaited GITP is on track with cable car system and retails space podium are expected to be ready by end of the year; while new gaming venue is expected to be ready by 1QFY17.

Risks

• Foreign exchange risk

• Transaction risk

• Loss of income

Forecasts

• We incorporate the tax incentive into our models and revise our forecast assumptions, resulting in lower EBITDA in FY16 & FY17 by 3.3% and 1%, respectively; but our FY16 & FY17 bottomline are raised by 15% and 25%, respectively.

Rating

HOLD ↔

• We opine that growth in 2017 on higher visitors from the amenities under GITP has been largely priced in, impending for more exciting catalysts in 2018. Meanwhile, we are still wary on the uncertain overseas operations, potential risks in execution and high cost involved.

Valuation

• We change our valuation method for RWG from DCF to peg at 10x EV/EBITDA given the probable fluctuation in the quantum of taxation moving forward. Target price is raised to RM4.76 from RM4.51 based on SOP-derived valuation.

Source: Hong Leong Investment Bank Research - 25 Nov 2016