Results

• Below expectations: Reported 1H17 revenue of RM4.5bn and core PATAMI of RM670.4m (-12.7% YoY), accounting for 35.5% and 41.1% of HLIB and consensus estimates.

Deviation

• Lower than expected performance from Malaysia operations coupled with higher depreciation charge and higher tax rate.

Dividends

• Declared an interim dividend of 4 sen (1H16: 3 sen), going ex on 11 Sep, in line with our full year estimates.

Highlights

• QoQ: Revenue grew by 3% but core PATAMI declined by 13.0%, mainly due to 1) weaker performance from Malaysia due to higher cost; 2) lower volume and win rate from UK; and 3) higher effective tax rate from US operations, while partly mitigated by better margin from US operations following the improvement in commission structure.
• YoY: Revenue was up 2.6% on the back higher contribution from all operations except UK operations. However, core PATAMI contracted by 30.2% due to 1) higher costs involved with premium business and opening expenses for GITP; 2) lower contribution from UK operation; 3) higher effective tax rate; and 4) higher depreciation charges, while partly aided by better margin from US operation.
• YTD: Revenue grew marginally by 1.5% but core PATAMI declined by 12.7%, mainly due lower contributions from Malaysia and UK operations coupled with higher depreciation charges.
• Overall, 2Q17 EBITDA margin for RWG was down to 30.1% (vs 35.0% in 2Q16) due to higher costs related opening expenses for new facilities under GITP primarily attributable to payroll cost while visitors’ arrival grew 8% YoY.
• UK operations recorded slower performance, due to lower win rate and volume, mitigated by improved performance at RW Birmingham clocking EBITDA gain in current quarter.
• US and Bahamas operations continue to report improved numbers, spurred by higher volume of business and improved commission structure at RWNYC.
• Management guided that the opening of new VIP gaming space is likely in 3Q17 while the targeted opening of 20 th Century Fox theme park is in 2H18.

Risks

• Foreign exchange risks.
• Execution risks

Forecasts

• We revise our model to account for 1) lower performance from Malaysia; 2) higher depreciation charges; and 3) imputed higher effective tax rate. As a result, our FY17/18/19 EBITDA is lowered by 4.7%, 2.2% and 1.5%, respectively.

Rating

HOLD ↔, TP: RM5.61 ↓

• We opine that growth in 2017 on higher visitors drawn by the GITP has been largely priced in. While the bottom line is cushioned by significant tax allowance, EBITDA growth for RWG is hardly exciting given that the risks of escalating pre- opening expenses, delayed opening and execution risks remain.

Valuation

• Reiterate HOLD while target price is reduced to RM5.61 (from RM5.89) based on SOP, implying 11x EV/EBITDA.

Source: Hong Leong Investment Bank Research - 25 Aug 2017