We are maintaining our HOLD call on Genting Malaysia (GENM) with a lower TP of RM5.77. 1H17 EBITDA at RM1,101m only constituted 43% of our previous forecast and 41% of consensus forecast. As a result, we trim our EPS for FY17-19E by 0.6%-7.4%. The weak results was due to lower margin for the Malaysia business, losses related to its US$ investment and impairment-off of assets related to its Bimini ventures. Management did however, announced a higher interim DPS of 4.0sen (3.5sen in 1H16) for the 1H17.

Higher Cost Related to GITP

Although the Malaysian operations recorded a 5% yoy revenue growth for 1H17, its EBITDA has reduced by 5.7% yoy, due to margin compression relating to higher payroll cost. More staff and training were required before the opening of new facilities on the Highlands. Management is still sticking to its full year EBITDA margin guidance of 33% (1HFY17 at 31.2%) for Malaysia, which we believe will be challenging as more new facilities will progressively open till the end of 2017.

Theme Park Opening Moved to 2H2018

Management is now guiding that the theme park opening has moved to 2H18, which is a slight delay from its previous guidance of 2Q18. As such we have also lowered our growth expectation for FY18E-19E. New facilities have the ability to drive higher visitation growth. This is well reflected post the opening of the Genting Premium Outlet in 2Q17 whereby visitation growth in 2Q17 is up 8% yoy, relative to the 3% decline in 1Q17. Hence, we still believe that the opening of the theme park will likely drive visitation growth.

Non-core Cost Another Drag to Profitability

As management is trying to turnaround its Bimini operation, they have decided to dispose its plane and took the impairment with it. The negative return on its investment segment, is mainly due to translation losses related to its Mashpee investment which is marked to market every quarter.

Maintain HOLD With a Lower TP at RM5.77

We have lowered our TP to RM5.77 as we trimmed our EPS forecast for FY17-19E, due to higher than expected cost and also the delay in the theme park, however we are still keeping our HOLD call on GENM.

Source: Affin Hwang Research - 25 Aug 2017