Period

4Q15/FY15

Actual vs. Expectations

4Q15 results came within expectations with FY15 core net profit of RM1.41b making up 99%/101% of house/street’s estimates. The core earnings included c.RM200m forex gains on the USD-denominated assets at investment and other segment’s EBITDA level.

Dividends

A final NDPS of 4.3 sen was declared, totalling FY15 NDPS to 7.1 sen which is higher than the 6.5 sen paid in FY14.

Key Results Highlights

4Q15 core net profit declined 27% QoQ to RM342.8m largely due to the losses at EBITDA level for investment and other segment of RM33.3m from profit of RM301.3m. Without this, casino earnings recovered at UK and North America operations due to better UK and RWNYC earnings while losses at Resort World Bimini were reduced. However, newly launched Resort World Birmingham and the local Genting Integrated Tourism Plan (GITP) incurred higher pre-opening expenses, which dragged earnings. In all, adjusted EBITDA for RWS slid 3% to RM503.9m while North America operations recovered to RM23.3m from RM4.4m in 3Q15 with UK operations turning around at RM24.2m from a loss of RM86.8m.

Outlook

Yesterday, GENM announced that the total capex for the 10-year GITP development will double to RM10.38b from RM5b previously, with capex for Phase 1 which will be carried out in the next five years rising to RM8.11b from RM4b previously. The capex for the main attraction, the 20th Century Fox World theme park will be more than RM2b. Although the much higher capex, we see the group facing no funding hurdle given its strong cash-flow generating ability and current net cash position of RM2.3b.

Operational-wise, the yield management initiative should help to improve earnings while the RWNYC numbers should be sustainable. Resort World Bimini’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 while the Resort World Birmingham may need some time before showing meaningful results.

Change to Forecasts

No changes to FY16-FY17 estimates.

Rating

Maintain UNDERPERFORM.

Valuation

Our price target maintained at RM4.26/SoP share.

Risks to Our Call

Stronger than expected earnings.

Source: Kenanga Research - 24 Feb 2016