FY17 results were satisfactory although earnings were lower than last year due to high start-up cost at GITP. However, we remain optimistic on the expansion program which should lead to further growth. Upcoming 1Q18 should be a seasonally strong quarter on CNY effect. GENM remains an OUTPERFORM with an unchanged target price of RM5.80/SoP share.

4Q17 matched expectations. 4Q17 results were within our estimates but beat consensus forecast slightly with FY17 core profit of RM1.30b 4%/6% above house/street’s estimates. The strong numbers in 4Q17 were largely due to better-than-expected results from home turf operations. It declared a total of 13.0 sen NDPS comprising 5.0 sen regular and 8.0 sen special, in 4Q17 bringing FY17 NDPS to 17.0 sen which was higher than our 7.25 sen assumption and against 16.5 sen paid last year. On a regular basis, FY17 regular NDPS was 9.0 sen.

Strong home turf numbers. 4Q17 core profit jumped 93% QoQ to RM447.8m on the back of 12% hike in revenue as the local operation at the hilltop soared 78% or RM261.1m at EBITDA level to RM597.2m. This was due to improved hold percentage from the mid-to-premium segment which saw high business volume. In addition, 3Q17 results were hit by start-up costs at GITP. Meanwhile, UK operations posted 19% jump in earnings but the North America unit reported earnings slump of 36% due to decline in revenue at RWNYC.

GITP’s start-up costs hit FY17 earnings. 4Q17 earnings also leapt 25% YoY from RM357.1m as revenue rose 11%. This was caused by the same reasons for sequential results. On the other hand, FY17 core profit contracted 18% from RM1.59b, despite revenue rising 4%, largely due to the high start-up costs in 3Q17 at GITP as mentioned above. Besides, its UK unit also reported lower EBITDA by 11% on higher operating costs and bad debt written off. However, the North America operation posted higher EBITDA by 21% on higher revenue from RWNYC and lower operating loss from the Bimini operation.

GITP is the key focus going forward. While the main attraction, 20th Century Fox World Theme Park’s opening is delayed to this year-end, 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 operation, 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.

Keep OUTPERFORM. We upgraded FY18 NDPS to 9.0 sen on regular basis from 7.25 sen previously. While we keep our key numbers unchanged, the NDPS upgrade led to a mild 0.1% trim in FY18 estimates. Meanwhile, we introduce new FY19 estimates with earnings growth of 4.6%. As it is in the seasonally strong CNY quarter, we maintain our OUTPERFORM rating with an unchanged target price of RM5.80/SoP share on the premise of earnings growth story from GITP expansion. Risks to our call include poorer luck factor and weaker casino earnings.

Source: Kenanga Research - 28 Feb 2018