Period  3Q14/9M14

Actual vs. Expectations At 70%/68% of house/street’s full-year FY14 estimates, 9M14 core earnings of RM950.5m came in below expectations. This was due to: (i) continued poor luck factor at RWG and (ii) higher-than-expected interest expense (9M14: RM31.9m vs. FY14E: RM31.0m). Nevertheless, this was mitigated by stronger-than-expected UK casino operations.

Dividends  No dividend was declared in 3Q14 as expected.

Key Results Highlights The 3Q14 core profit leapt 29% QoQ to RM332.2m, on the back of 17% rise in revenue to RM2.23b, thanks solely to the strong turnaround in UK casino operations. However, other operations reported lower results.

 Despite revenue inching up 1%, the RWG reported adjusted EBITDA dipped 7% QoQ to RM413.8m which was due to higher cost for VIP segment and higher payroll. In addition, luck factor remained weak in 3Q14, which was similar to 2Q14.

 The UK unit posted an adjusted EBITDA of RM145.7m in 3Q14 from a loss of RM66.1m which was partly hit by higher bad debts written off. In fact, 3Q14 revenue of RM674.7m and RM145.7m adjusted EBITDA were the record highs since the UK casinos became GENM’s subsidiary in 4Q10 thanks to improved business volume and hold percentages.

 However, the North America operations saw its adjusted EBITDA plunging 75% QoQ to RM6.9m while revenue declined 11% to RM225.8m. This was attributed to: (i) increase losses at adjusted EBITDA level by RM8.8m for RWB and (ii) higher preoperating expenses by RM40.9m mainly due to expenses incurred on the application of licenses in New York State.

Outlook  The RM5b 10-year refurbishment program will be a structural change to its home turf operation and act as an earnings catalyst from 2016 onwards. On the other hand, the yield management initiative should help to improve earnings while the RWNYC numbers should be sustainable. However, the UK operations could continue to see tougher times due to its VIPcentric nature.

Change to Forecasts We have cut FY14-FY15 estimates by 2%-3% after adjusting for poorer luck factors at RWG, higher interest expenses and higher UK earnings.

Rating Maintain MARKET PERFORM

Valuation  Post earnings revision, our new target price is RM4.30/SoP share from RM4.41/SoP share.

Risks to Our Call Poorer luck factor.

Source: Kenanga