Genting Malaysia (GENM)’s 9MFY13 core profit of MYR1.29bn was largely in line with both consensus and our estimates. Key highlights include lower profitability of its Malaysian and UK operations due to higher opex and an increase in bad debt provisions. However, its US segment continued to improve on higher visitation and higher winnings per slot machine. Maintain NEUTRAL, with SOP-based FV at MYR4.11.

- Within expectations. GENM’s 9MFY13 revenue inched up 4.0% y-o-y to MYR6.21bn, driven by improvement across all three core gaming operations in Malaysia, UK and US. Core EBITDA, however, weakened 2.3% y-o-y to MYR1.83bn due to higher overhead expenses from its Malaysian operation, an increase in bad debts under its UK casinos, as well as start-up losses of MYR50.3m incurred in its Bimini operations. 9MFY13 core earnings, however, jumped 11.5% y-o-y to MYR1.29bn due to a significantly lower effective tax rate of 10.3% vs 26.3% in 9MFY12. This was largely in line with both consensus and our estimates, representing 76.4% and 72.4% of the respective full-year estimates. On a quarterly basis, 3QFY13 revenue of MYR2.12bn and core earnings of MYR395.6m were generally weaker q-o-q due to seasonality, but better y-o-y on higher gaming volume in both its UK and US operations, partly offset by higher opex in its Malaysian casino operations.

- Other highlights. During the analyst briefing, management highlighted that the implementation of the minimum wage policy in its Malaysian operations effective 1 July 2013 affected its profitability. Visitor arrivals to Genting Highlands weakened 7% y-o-y in 3QFY13 following the closure of its outdoor theme park. Nonetheless, management remains hopeful that the recent refurbishment of its hotel suites would help to entice gamblers’ interests moving into its seasonally best 4Q.    

- Maintain NEUTRAL. With the results coming in largely in line, we make no changes to our earnings forecasts for now. Maintain NEUTRAL, with our SOP-based FV unchanged at MYR4.11. Key re-rating catalyst over the near term would be the unveiling of its MYR3bn facelift programme, of which MYR1bn have been announced thus far.

Source: RHB