2Q17 results were below expectation given the higher-than expected GITP pre-opening expenses while Genting UK was hit by lower business volume coupled with poor luck factor. Having said that, overall business volumes are likely to improve as the VIP floor at new SkyCasino opens in 3Q17. We retain MARKET PERFORM on the stock for its GITP growth story with unchanged price target of RM6.00/SoP share.

1H17 below. At 35%/38% of house/street’s FY17 estimates, 1H17 core profit of RM618.5m came below expectations owing to: (i) higher-than expected depreciation on GITP, (ii) higher pre-operating expenses on GITP, and (iii) lower UK earnings on business volume and hold percentage. It declared 1st interim NDPS of 4.0 sen (ex-date: 11 Sep; payment date: 04 Oct) in 2Q17 which is higher than the 3.0 sen paid in 2Q16.

Weaker sequential results. Despite revenue rising 3%, 2Q17 core profit declined 22% QoQ to RM271.2m due to the weaker UK earnings, as mentioned above as its adjusted EBITDA contracted 54%, coupled with higher losses at adjusted EBITDA level from the investment and other segment by RM47.3m on higher forex losses on the USD denominated assets due to the recovery of MYR against USD. Although earnings for Malaysia unit were flattish, EBITDA margin came off due to higher pre-opening expenses as mentioned above on GITP. On the positive note, North America unit posted 124% jump in earnings as losses at Resorts World Bimini narrowed.

Lower earnings on GITP’s start-up costs. Similarly, both 2Q17 and 1H17 reported slightly higher revenues, core profits falling 39% and 19%, respectively, to RM271.2m and RM618.5m. This was largely due to weaker earnings from Resort World Genting on pre-operating expenses and Genting UK operations. However, the Northern America segment posted stronger earnings on higher revenue from RWNYC

and lower operating loss at Resorts World Bimini.

GITP is the key focus going forward. While the main attraction, 20th

Century Fox World Theme Park opening is delayed to 1H18, the RM10.38b 10-year GITP development has been progressively opening the retail space, restaurants and casino floor since end-2016, which should contribute to bottom-line. Going forth, we remain cautious on the VIP-centric UK operations, which could be volatile while the Resort World Birmingham may need some time before showing meaningful results. Meanwhile, RWNYC numbers should be sustainable while

Resort World Bimini is striving to be profitable next year.

Maintain MARKET PERFORM. With this weaker set of results, we trimmed FY17-FY18 estimates by 12.7%/0.1% to account for lower

RWG and Genting UK earnings as well as higher depreciation assumption but higher earnings assumption for North America operation. We continue to rate the stock MARKET PERFORM with unchanged price target of RM6.00/SoP share. Upside risk to our call includes stronger-than-expected earnings, especially from the GITP program.

Source: Kenanga Research - 25 Aug 2017