Genting  Malaysia  (GENM)’s  1QFY13  earnings  missed  estimates  as  its Malaysian  operations   incurred higher than expected  opex while its UK operation saw  subpar  numbers.   Accordingly,  we  lower  our  FY14  and FY15 estimates  by 2.5%-3.7%, but  bump  up our FY13  net profit forecast by 12.1% after factoring in the lower effective tax rate in 1Q. Downgrade to NEUTRAL, with a lower FV of MYR3.97. 

- Positive tax  boost.  1QFY13 revenue  slipped  2.2% y-o-y to MYR1.9bn owing  to  lower  contribution  from  GENM’s  UK  operations,  which witnessed  a  900bps  dip  in  volume  as  well  as  slight  drop  in  hold percentage.  Its  core  EBITDA,  meanwhile,  inched  up  1.3%  y-o-y  to MYR519.9m  as  the  higher  volume  and  lower  opex  at  its  New  York racinos  more than offset  the higher promotion  expenses incurred  by  its Malaysia operations as well as  weaker showing  at  its London casinos. Nonetheless,  the  group’s  core  PBT  of  MYR394.0m  (+1.7%  y-o-y)  was still short on both our and consensus expectations, accounting for 17.7% and  17.6%  of  the  respective  full-year  estimates.  Elsewhere,  core earnings  jumped  55.0% y-o-y  to  MYR420.6m  due to  a  positive taxation effect arising from  recognition of previously unrecognized tax losses in the group’s US business.  

-  Revising earnings.  We are  finetuning  our earnings estimates  following the  release of GENM’s  results.  Overall, we  lower  our profit  forecasts for its Malaysian  operations in view  of the higher opex,  as well as  both our volume  and  margins  forecasts  for  its  UK  operations.  As  a  result,  our FY14  and  FY15  core  earnings  estimates  are  trimmed  by  2.5%-3.7%. However,  we raise our  FY13 net profit forecast by 12.1% to MYR1.9bn on incorporating the lower effective tax rate witnessed during the quarter.  

- Downgrade to NEUTRAL.  In view of  its  recent share price appreciation and  following  our  earnings  revision,  we  are  downgrading  our recommendation to NEUTRAL, with our SOP-based FV now at MYR3.97 (from  MYR4.13  previously).  The  stock’s  key  re-rating  catalysts  include potential awards of new casino licences in New York  and the potential passing of a gaming bill in Florida state. 

Source: RHB