Genting  Malaysia  (GENM)’s 1HFY13  earnings  missed  both  consensus and  our  estimates  due  to  higher  than  expected  promotion  expenses incurred  by  its  Malaysian  operation  while  its  UK  unit  made  higher  bad debt  provisions.  Accordingly,  we  lower  our  FY13F-15F  earnings estimates by 4.3%/1.5%/1.5% respectively. Maintain NEUTRAL, with our FV now marginally lower at MYR3.92 (from MYR3.97). 
 
- Profitability  drops.  1HFY13  revenue  inched  up  1.6%  y-o-y  to MYR4.09bn,  driven  by  both  the  Malaysia  and  US  operations,  which expanded  3.6%  and  4.5%  respectively.  Core  EBITDA,  however, weakened 3.3% y-o-y to MYR1.24bn due to higher promotion expenses incurred  by  its  Malaysia  operation,  as  well  as  an  increase  in  bad  debts written  off  by  its  UK  casinos.  GENM’s 1HFY13  core  earnings  jumped 15.9% y-o-y to MYR899.0m due to a significantly lower effective tax rate of  9.1%  versus  24.6%  in  1HFY12.  However,  despite  the  fact  that  1H  is seasonally  the  stronger  half  of  the  year,  this  figure  fell  short  of  both consensus and our estimates, representing only 44.8% and 46.4% of the respective  full-year  estimates.  On  a  quarterly  basis,  the  2QFY13 numbers were generally better q-o-q but weaker y-o-y due to the 44.0% y-o-y plunge in contribution from its UK casinos owing to higher bad debt provisions.

- DPS of 4.3 sen. Management declared  a first gross interim DPS of 4.3 sen, which translates into a YTD payout ratio of 27.7%.

- Revising  earnings.  We  lower  our  earnings  estimates  by  4.3%  for FY13F  and  1.5%  for  both  FY14F  and  FY15F  after  factoring  in  potential weakness at its UK operation.  

- Maintain  NEUTRAL.  Following  our  earnings  revision,  our  SOP-based FV is slightly lower at MYR3.92 (from MYR3.97). While we may see the potential  of  the  group  being  awarded  new  casino  licences  in  New  York come 4Q, the likelihood of  a hike in gaming tax in the 2014 Budget - due to be unveiled on 25 Oct – reinforces our cautious stance for now. 

Source: RHB