Results

• Below expectations: Reported 9M17 revenue of RM6.8bn and core PATAMI of RM929.1m (-23.4% YoY), accounting for 59.9% and 65.2% of HLIB and consensus estimates, respectively.

Deviation

• Lower win rate and EBITDA margin from Malaysia operations.

Dividends

• None.

Highlights

• QoQ: Revenue was flat (-1.0%) but core PATAMI declined by 17.0%, mainly due to weaker performance from Malaysia on the back of poor luck factor and higher cost as well as lower contribution from US operations. This was partially mitigated by higher volume of business and win rate from UK operations.

• YoY: Revenue was up 3.2% on the back of higher contributions from all operations, except Malaysia due to poor luck factor. However, core PATAMI contracted by 41.8% due to higher costs involved with premium business and opening expenses for GITP, which were partially mitigated by higher performances from UK and US operations.

• YTD: Revenue grew marginally by 2.0% but core PATAMI declined by 23.4%, mainly due to lower contributions from Malaysia (high cost and low win rate) and UK operations (lower win rate and higher bad debt) coupled with higher depreciation charges.

• Overall, 3Q17 EBITDA margin for RWG was badly hit due to lower win rate coupled with higher payroll cost and utilities associated costs for opening expenses of new facilities under GITP.

• We understand that new facilities under GITP may take longer gestation period with lower EBITDA margin at 32- 33% in the near future (assuming normalized hold rate) before recovering to 34%-35% in FY19/20.

• Visitors’ growth remains healthy with 6.4m visitors in 3Q17 alone (+25% yoy including visit to GPO facilities).

• Management guided that the next facilities available will be the new VIP suites while the indoor theme park is estimated in the 1H18, followed by 20 th Century Fox theme park by year end.

Risks

• Foreign exchange risks.

• Execution risks

Forecasts

• We revise our model to account for lower margin for Malaysia business. As a result, our FY17/18/19 EBITDA is lowered by 12.8%, 8.6% and 3.5%, respectively.

Rating

• HOLD ↔ , TP: RM5.10

• The topline growth is hardly exciting despite recorded high visitors’ growth drawn by the new GITP facilities. Besides, EBITDA margin for RWG has eroded given the longer gestation period from escalating pre-opening expenses and delayed in opening of facilities.

Valuation

• Maintain HOLD with target price reduced to RM5.10 (from RM5.61) based on SOP, implying 10x EV/EBITDA.

Source: Hong Leong Investment Bank Research - 24 Nov 2017