GenM’s 1H18 core PATMI of RM836m (+24.7% YoY) was within expectations. Declared an interim dividend of 6 sen per share. The higher YoY earnings were primarily driven by stronger performance from Malaysia operation on the back of stronger GGR and contributions from non-gaming segments. Maintain forecast and BUY rating with unchanged target price of RM5.80 based on SOP, implying a 10.7x forward EV/EBITDA. We believe GenM will continue to yield the results for its GITP investment with the resilient growth.

Within expectations. 1H18 revenue of RM4.8bn translated into core PATMI of RM835.8m, accounting for 46.1% and 50.5% of HLIB and consensus full year forecasts, respectively.

Dividend. Declared an interim dividend of 6 sen per share (1HFY18: 4 sen) going ex on 14 Sept 2018, representing an annualized yield of 2.3% at current price.

QoQ. 2Q18 revenue (+0.9%) and core PATMI (+0.2%) of RM418.2m were rather flat for all operations with only notable improvement in US and Bahamas (+19.8%) due to narrower losses from Bimini operations.

YoY. Revenue rose 5.7% in 2Q18 while core PATMI grew stronger by 34.1%, mainly driven by stronger performance from Malaysia on the back of higher win rate on mid to premium players segments as well as one month of tax holiday. Besides, higher contributions from non-gaming segments which include income from car park, skyway, rental, F&B and hotel operations. The overall higher results were partially offset by weaker performance from all overseas operations.

YTD. Core PATMI grew by 24.7% on the back of stronger performance from Malaysia (higher visitors, win rate for gaming segment as well as contribution from non-gaming segments). This was partially offset by higher operating cost and weaker performance from UK operations due to higher write off of bad debt.

RWG. 1H18 gaming volume achieved double digit growth YoY despite slight weakness in 2Q18 due to World Cup event and GE14 factors while EBITDA margin improved slightly at 33.7% (1H17: 31.2%) thanks to higher revenue base and tax holiday. Visitors’ growth remained robust with 12.9m visitors (+21% YoY) recorded.

Overseas operations. UK business in 1H18 was hit by lower volume, win rate and bad debt recovery, partially mitigated by better performance in Egypt. Meanwhile, higher contribution from US operations was helped by narrower loss from Bimini operations despite the lower overall revenue due to unfavourable forex movement.

Outlook. The new SST system is not expected to have any material impact to the group as the computation for gaming operations is indifferent to that of GST. Non gaming income will continue to provide a healthy growth with more facilities to be rolled out. Besides, the indoor theme park is now targeted to be unveiled in 4Q18 while the Fox Theme Park has been delayed to 1Q19.

Forecast. Unchanged as the Results Were in Line.

Maintain BUY with unchanged target price of RM5.80 based on SOP, implying a 10.7x forward EV/EBITDA. We believe GenM will continue to yield the results for its GITP investment with the resilient performance. The high visitors’ growth achieved will continue to provide the springboard for growth as more facilities are expected to be rolled out. The worry on margin erosion due to gestation period and pre-opening expenses will be mitigated by both the tax holiday and tax allowances.

Source: Hong Leong Investment Bank Research - 30 Aug 2018