Period     1Q13

Actual vs. Expectations    The 1Q13 results were within expectations with the core net profit of RM420.6m accounting for 26% of our full-year FY13 estimate and 25% that of the market consensus.   

Dividends    No dividend was declared as expected. 

Key Results Highlights   The 1Q13 core net profit rose 2% QoQ despite revenue contracting 3% over the quarter thanks largely to a RM108.1m deferred tax credit for its USA operations on tax losses. In fact, GENM reported a 14% QoQ decline at the adjusted EBITDA level, attributable to its weaker UK numbers while the Malaysian operations were hit by higher operating expenses and its contribution in support of social responsibility efforts. 

The Malaysian operations recorded a 19% contraction at the adjusted EBITDA level due mainly to higher operating expenses and its contribution in support of social responsibility efforts. For its casino operation, the revenue rose on higher business volume and a higher hold percentage in the VIP business. 

In its UK operations, the adjusted EBITDA declined 46% QoQ in 1Q13 as revenue slid 16% due to a lower business volume and hold percentage in its London casinos, where the revenue dropped sharply by 49%.  However, the provincial casinos achieved a 15% growth in revenue on higher volumes recorded.        

For the USA operations, RWNYC experienced a higher business volume that helped to push the USA segment’s adjusted EBITDA by 53% on a 11% hike in revenue. The average daily win per machine for the racino has normalised to USD416 in 1Q13 from USD361, which was affected then by Super Storm Sandy in 4Q12. 

Outlook    2Q13 should be seasonally weaker than 1Q13 as the latter was backed by the CNY festive period. However, yield management initiative and the new hotel rooms at Genting Highlands should help to improve earnings while the RWNYC numbers should be sustainable. However, the UK operations could continue to see tough times due to its VIP-centric nature.

Change to Forecasts       We have upgraded FY13 EPS by 1% after adjusting for (1) the RM108m tax credit and (2) lower earnings for the London casinos. We have cut FY14 estimate by 7% for the lower earnings assumption for the London casinos. Meanwhile, we have introduced our new FY15 forecast.    

Rating    Maintain OUTPERFORM

Valuation     After rolling over our valuation base year to CY14, our new price target is now RM4.39/SOP share from RM4.19/SOP share previously.  

Risks    Unfavourable luck factor.

Source: Kenanga