Results

• Reported FY16 revenue of RM8.93bn and core PATAMI of RM1.55bn (+38.4% yoy) which is within our estimates at 96.2%; but slightly above consensus estimates at 105.8%. However, EBITDA level was within expectations at 98.4% and 96.8%, respectively.

Dividends

• Declared a special dividend of 7.3 sen payable on 28 Mar 2017 and proposed a final dividend of 6.2 sen, bringing FY16 total dividend to 16.5 sen, yielding 3.0%.

Highlights

• YoY: Revenue was flat (-0.4%) with lower contributions from UK & US businesses, offset by higher contribution from Malaysia. Core PATAMI was down by 8.9% due to higher depreciation & amortization after removing the RM1.27bn gain from disposal of Genting HK and other non-core items.
• QoQ: Bottom-line contracted by 24.3%, mainly due to high base effect resulting from lower depreciation & amortization as well as favorable tax credit of RM12.5m recognized in the previous quarter.
• FY16: Core PATAMI up by 38.4% mainly driven by improvements from overseas operation especially in UK and the recognition of tax relief allowable under the GITP.
• Overall, EBITDA margin for RWG was stable at 34.5% (vs 34.6% last year). Gaming volume saw an increased and on the back of higher visitor arrivals at 20.2m (+4% yoy).
• UK operations recorded a stellar performance (EBITDA of RM260m) reversing the LBITDA of RM 124m yoy, benefited from higher hold rate from premium players business, higher volume from non-premium business and higher contribution from RW Birmingham and lower bad debt provision.
• In the US and Bahamas, EBITDA grew by 70.5%, spurred by higher volume of business from RWNYC, favourable forex movement of USD against RM and net reversal of expenses over accrued in previous periods. Meanwhile, RW Bimini is expected to take longer time to recover.
• Management shared that the opening of new gaming space is now likely in 2QFY17 instead of 1QFY17 and guided a lower EBITDA margin in FY17 due to pre-opening expenses.

Risks

• Foreign exchange risk
• Transaction risk
• Loss of income

Forecasts

• Unchanged.

Rating

HOLD ↓, TP: RM5.10 ↔

• While the special dividend may continue to excite interest, we opine that growth in 2017 on higher visitors from the amenities under GITP has been largely priced in, given the 18% surge in share price since our last upgrade to BUY in Jan. While the bottom-line is masked by significant tax allowance, topline growth for RWG is still largely flat. The risks of escalating pre-opening expenses and execution remain. Downgrade to HOLD.

Valuation

• Target price is unchanged at RM5.10 based on SOP- derived valuation, implying 10.6x EV/EBITDA.

Source: Hong Leong Investment Bank Research - 24 Feb 2017