Genting Malaysia (GENM) reported a relative good set of results, as 2017 core-PATAMI of RM1299m (-17% yoy) came in above both consensus and our expectation (105% of ours and street’s respective full year forecast). The positive surprise was driven by the recovery in hold ratio in the VIP segment, supported by overall higher volume growth in both the VIP and mass market segment in 4Q. Management has also announced a special dividend (which is a positive surprise) of 8sen (17sen for 2017). Upgrading to BUY, with a higher TP at RM6.00.

Malaysia Started to Reap the Benefit of GITP

Despite adjusted EBITDA for Malaysia falling by 7.1% yoy, we are not overly perturbed over the outlook, as the decline was mainly due to a lower “win ratio” in 3Q17 and also some margin contraction from the higher cost related to the new facilities under GITP. Visitation to the Highland is up by 9% yoy, as supported by the opening of new facilities, which has helped to drive higher gaming volume from both VIP (+15% yoy) and the mass (+8% yoy). As such we believe that as the new theme parks open by end of 2018, we could see a higher growth rate in 2019.

Overseas Operation Improving; Higher Dividend a Surprise

Although the UK operation’s adjusted EBITDA is down by 11% yoy, we think that this is still a commendable result, as the decline is mainly related to write-off of bad debts. Meanwhile US operations adjusted EBITDA is up by 21% yoy, driven by the narrowing losses from its Bimini operation. The higher dividend payout (incl special dividend) came as a positive surprise to most, as the indication given last year was the special dividend was mainly funded through the disposal of Genting Hong Kong shares.

Upgrade to BUY With a Higher TP of RM 6.00

We have increased our SOTP-based 12-month TP to RM6.00 (from RM5.15) as we rolled forward our valuation to 2018, and upgrade our call to BUY, despite the trimming of our EPS forecast for FY17-19E, to adjust for the higher cost structure and the visitation growth forecast for the Malaysia operation.

Source: Affin Hwang Research - 28 Feb 2018