Genting Malaysia (GENM) reported an exceptionally strong set of 6M19 numbers; core-PATAMI of RM737m (-10% yoy) came in above expectations, comprising 59% and 63% of consensus and our 2019 forecasts, respectively. The better-than-expected performance was driven by the exceptionally high hold percentage in the VIP segment. The high hold percentage has compensated for the lower gaming volume. We have tweaked our forecasts to incorporate 6M19 performance, but maintain our HOLD call with an unchanged SOTPbased TP of RM3.40 .

Drop in Volume Continues

Overall gaming volume for the VIP segment contracted by 25% yoy in 6M19, as GENM has cut back on the rebates/incentives given to the VIP players since the increase in gaming tax. The drop did not come as a surprise to us, however if the volumes continue to decline qoq, there could be downside risk to our forecasts. Management has indicated that they are working towards improving VIP volumes. We believe that GENM might need to be more aggressive on its cost savings, as current room to raise rebates are minimal, given that the win adjusted EBITDA margin for its Malaysia operation is only 28% for 6M19 (vs 34% in 6M18).

Visitation Is Up But Not the Spending on Gaming

Although overall visitation at the highlands has increased by 11% yoy to 6m in 6M19, gaming revenue for the non-VIP segment has fallen by 5% yoy. Management believes that there could be a change in spending pattern due to the weaker consumer sentiment. However, some of the spending might have been diverted to the non-gaming facilities, as room revenue, F&B revenue and theme park revenue continued to show positive growth. The average room rate for the quarter at RM220/night has more than doubled vs. the year ago period. We expect the visitation growth to continue as the outdoor theme park is likely to open in 3Q20.

Maintain HOLD With An Unchanged TP of RM3.40

We raise our 2019E earnings to factor in the better 2Q performance, but maintain our HOLD call with an unchanged TP of RM3.40. Key risks to our call include: 1) intensifying competition from other regional casinos; 2) higher/lower-than-expected cost structure; and 3) volatility in VIP segment.

Source: Affin Hwang Research - 30 Aug 2019