Period

2Q15/1H15

Actual vs. Expectations

At 40%/43% of house/street’s full-year estimates, the 1H15 core net profit of RM597.4m came below expectations. This was primarily due to higher bad debts written off by Genting UK which turned its results into the red of -RM99.9m at EBITDA level from profit of RM38.3m.

Dividends

First interim NDPS of 2.8 sen was declared in 2Q15, (ex-date: 28/09; payment date: 22/10), which was lower than the 3.0 sen paid in 2Q14.

Key Results Highlights

2Q15 core profit slumped 29% QoQ to RM247.5m, due to: (i) lower revenue by 5% as business volume declined across the board, (ii) higher depreciation by 3%, mainly from RWB, and (iii) higher bad debts written off as mentioned above.

RWG posted a 13% QoQ decline in adjusted EBITDA to RM420.9m in 2Q15, as topline fell 7%, driven by lower VIP business volume, poorer luck factor and the implementation of GST. Meanwhile, the UK casino operations reported lower revenue by 17% on lower VIP business volume and hold percentage while the abovementioned higher bad debts written off pushed this unit into losses.

The North American operations reported a 19% QoQ decline in EBITDA to RM37.9m from RM46.8m while revenue fell marginally by 1% to RM311.0m from RM313.8m. During the quarter, RWB also incurred some pre-operating expenses.

Outlook

The RM5b 10-year refurbishment program will be a structural change to its home turf operations and act as an earnings catalyst from 2016 onwards. The theme park is on track to be ready by end-2016/early- 2017 with no cost overrun at this juncture.

On the other hand, the yield management initiative should help to improve earnings while the RWNYC numbers should be sustainable. RWB’s new 300- room luxury hotel is expected to reduce its operating loss and to breakeven in 2H15. However, the UK operations could continue to see tougher times due to its VIP-centric nature.

Change to Forecasts

We trim FY15-FY17 estimates by 5%-6%, on the back of: (i) lower RWG revenue on GST impact, (ii) lower Genting UK earnings on higher bad debts write off, (iii) higher depreciation on RWB, and (iv) longterm USD/GBP assumptions of RM3.80/RM5.50.

Rating

Upgrade to OUTPERFORM from MARKET PERFORM on recent price weakness

Valuation

Post earnings revision, our new price target price is now lowered to RM4.41/SoP share from RM4.52/SoP share.

Risks to Our Call

Poorer luck factor.

Source: Kenanga Research - 27 Aug 2015