FY18 results beat forecast which was due to lower taxation. Operationally, it was a good year as the home turf operations posted solid numbers on luck factor for VIP business with volume uptick for non-VIP segment. Going forth, all eyes will be focused on next 1Q19 results in May for the actual impact from the 10% tax hike. Till then, at best, it is a MP call with a target price of RM3.60 as share price has rebounded 15% YTD.

4Q18 beat expectations. 4Q18 core profit of RM479.7m came above expectations, which took FY18 core earnings to RM1.88b that beat house/street’s forecast by 17% each. This was due to lower taxation of RM82.3m in FY18 against our estimate of RM269.1m. However, at revenue and adjusted EBITDA levels, the earnings were 99% and 100% of our forecast. It declared a total NDPS of 13.0 sen (5.0 sen regular dividend and 8.0 sen special dividend) in 4Q18, which was the same as 4Q17, tallying FY18 NDPS to 19.0 sen, higher than our estimate of 12.0 sen and 17.0 sen paid in FY17.

Higher cost relating to VIP impacted sequentially results. 4Q18 core profit fell 17% QoQ to RM479.7m while revenue fell 4% over the quarter, due to higher cost relating to the VIP business. This resulted in the Malaysia operation reported adjusted EBITDA, which declined 9% to RM582.2m with revenue that remained largely unchanged. Meanwhile, the UK and Egypt segment as well as the North America unit posted small improvement of RM1.9m and RM20.6m at adjusted EBITDA, respectively. In all, the overall earnings were distorted by taxation, which saw GENM reporting RM194.5m deferred tax credit on top of the reversal of additional tax expenses of RM166.2m

Malaysia operation led FY18 results. YoY, 4Q18 core profit rose 7% from RM448.2m in 4Q17 which was partly driven by solid North America earnings, which jumped 141% to RM92.0m due to higher revenue from RWNYC and lower operating loss at Bimini operations. While Malaysia earnings remained flattish, the UK and Egypt operations reported lower earnings by 3% on lower business volume and hold percentage. YTD, FY18 core earnings jumped 45% to RM1.88b on the back of strong home turf operation with adjusted EBITDA soaring 27% due to favourable luck factor for VIP segment while the non-VIP volume increased 4% over the year.

The tax hike in January is the key focus. After facing a severe sell- down last year end following the 10% hike in casino duties, termination of Twentieth Fox Theme Park and the huge RM1.83m impairment for the US Tribe’s promissory notes, GENM has bounced back with 15% YTD gain. With sentiment improving, focus now is on the casino duties hike, which took effect in January. Thus, the next quarterly results in May, should offer more clarity about how the 10% additional tax could impact its bottomline. On the other hand, there is still no update on the outdoor theme park at the Genting Highland as the legal case is still ongoing.

Maintain MARKET PERFORM. Post-results, we raised FY19E earnings by 11% as we lowered our taxation rate assumption to 12% from 15% previously, which is similar to management’s guidance. With improving sentiment, we reduced our discount to 20% from 30% against its SoP valuation; our new target price is raised to RM3.60 from RM3.10 previously. We shall adjust the discount factor further should the 10% casino duties hike’s impact is within our expectations when the 1Q19 results is released in May. As such, we believe at best it is a MARKET PERFORM call until the impact from tax hike is ascertained. Risks to our call include the positive reversal of the above two negative factors.

Source: Kenanga Research - 28 Feb 2019