Genting Malaysia (GENM) reported a good 1H18 result that was within expectations. Net profit jumped 46% yoy to RM754m in 1H18, mainly driven by higher revenue and EBITDA margin improvement. Malaysian operations saw strong visitor growth of 15% yoy in 2Q18 and 21% yoy in 1H18 with its new non-gaming facilities attracting the crowd. GENM is a key beneficiary of rising domestic consumption spending. Maintain BUY with a 12-month SOTP-based TP of RM6.00.

Improved Profitability

Net profit of RM754m (+46% yoy) in 1H18 was within expectations, comprising 49-53% of consensus FY18E forecast of RM1.66bn and our estimate of RM1.53bn. Revenue increased 7% yoy to RM4.82bn, mainly driven by its Malaysian operation (+14% yoy). UK and US operations saw revenue declining 3% yoy and 10% yoy respectively in 1H18, partly due to the stronger RM against the US$. Adjusted EBITDA grew by a stronger 19% yoy to RM1.31bn in 1H18, mainly driven by the improved profitability of its Malaysia (+23% yoy) and US (+6% yoy) operations. Lower net exceptional loss of RM67m (-34% yoy) boosted its bottomline. Core net profit surged 33% yoy to RM821m in 1H18 on higher operating profitability.

Expansion of Malaysian Resort to Drive Growth

Despite the strong 15% yoy visitor growth, gaming revenue only grew 3% yoy in 2Q18 due to the FIFA World Cup betting, which adversely impacted its casino gaming operation. But the “zero” GST implemented by the government from 1 June 2018 partly offset the higher cost from its ongoing expansion of Resorts World Genting (RWG). There will still be a 2-month positive impact from the “zero” GST in 3Q18 before the SST at the same rate kicks in to normalise cost from 1 September 2018. The scheduled opening of Skytropolis indoor theme park in 4Q18 and 20th Century Fox World Theme Park in 1H19 will drive regional visitor growth.

Maintain BUY With An Unchanged TP of RM6.00

We make no changes to our SOTP-based 12-month TP of RM6.00 while maintaining our BUY call on the stock. We believe that as we move closer to end of the year, the clarity on the opening date of the theme park will be the key catalyst for the stock, as we are expecting a strong uplift in visitation growth post its opening.

Risks to Our Call

Key downside risk to our call include: 1) Further delays to the opening of the theme park; 2) Higher than expected cost structure, and 3) Volatility in the VIP customers.

Source: Affin Hwang Research - 30 Aug 2018