Period

3Q15/9M15

Actual vs. Expectations

At 60% of house/street’s full-year FY15 estimates, the 9M15 core net profit of RM839.6m came below expectations. The core earnings in 3Q15 included RM231.0m forex gains on the USD-denominated assets at investment and other segment’s EBITDA level.

The key discrepancies between our and the actual results were due to: (i) UK operations reporting losses, and (ii) our over optimistic earnings assumption for the American operations.

Dividends

No dividend was declared as expected.

Key Results Highlights

Without adjusting for the abovementioned RM231.0m forex gains, 3Q15 core profit surged 91% QoQ to RM472.2m due mainly to the strong Malaysian earnings offsetting the weaker UK and America operations.

RWG posted a strong 24% QoQ growth in adjusted EBITDA to RM521.4m due to higher revenue by 8% coupled with lower cost related to VIP business. However, its UK casino operations remained weak although losses at EBITDA level narrowed slightly to RM86.8m from RM100.0m, due to lower bad debts written off. On the other hand, the North American operations reported adjusted EBITDA, which fell sharply to RM4.4m in 3Q15 from RM37.9m in 2Q15 due to higher loss incurred by RWB due to preoperating expenses, mainly for the ferry operations.

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 break even in 1H16. However, the UK operations could continue to see tougher times due to its VIP-centric nature.

Change to Forecasts

We revise downward our FY15-FY17 estimates by 11%/1%/1% on the back of: (i) Genting UK incurring losses in FY15 before turning into the black for the next two years, and (ii) lower American operations’ earnings.

Rating

Downgrade to UNDERPERFORM from MARKET PERFORM for its stretched valuations following the earnings downgrade.

Valuation

Post earnings revision, our new price target is lowered to RM4.26/SoP share from RM4.41/SoP share.

Risks

Poorer luck factor.

Source: Kenanga Research - 27 Nov 2015