Review

• Genting Malaysia’s (GENM) FY16 core profit of RM1.69bn came in within our expectation but above consensus estimates. For this quarter, the company proposed a special dividend of 7.3sen/share together with a final dividend of 6.2sen/share, bringing the total FY16 dividend to 16.5sen/share or dividend yield of 3%.

• The group’s FY16 headline profit grew by >100% due to one-off disposal gain of RM1.3bn from sales of Genting Hong Kong shares. Excluding this and other exceptional items, FY16 core profit advanced by 39.6% driven by: 1) turnaround in UK operations; and 2) increased contribution from US and Bahamas and net reversal of over-accrued expenses, where US operation EBITDA increased by 70%. Malaysia operation remained resilient with respective 0.8% and 0.6% growth in revenue and EBITDA for FY16.

• For the casino operation, Malaysia operations experienced single-digit growth in VIP segment while the non-VIP segment decreased by singledigit. In UK, FY16 net revenue increased by 47% to GBP333mn and the EBITDA increased by more than 100% to GBP50mn due to better hold percentage and increased business volume in Resorts World Birmingham. In US, Resorts World New York City reported 5% increase in revenue to US$270mn driven by additional slot machines. Bimini operations recorded 21% drop in revenue due to losses to high-rollers.

Impact

• We maintain FY17-18 earnings unchanged.

Outlook

• The progressive opening of development under the GITP will give rise to tax benefit and management guided that this tax benefit may not be evenly distributed every quarter in 2017. As far as capex is concerned, RM3bn are earmarked to be spent on on-going development within the GITP program for FY17.

• Management guided that pre-opening expenses could lead to 1-2%-pts decline in EBITDA margin for FY17. On top of that, we project depreciation would also be another factor pulling down FY17 margin.

Valuation

• We raise GENM’s DCF valuation to RM6.10/share (from RM5.53/share previously) based on revised DCF rate of 8.8%. The change in discount rate is to factor in improving market condition with stable growth in the VIP volume in this region. Also, the investment sentiment on gaming counters is expected to remain positive ahead of the bidding war for casino licences in Japan. Maintain Buy.

Source: TA Research - 24 Feb 2017