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Friday, November 25, 2016

Brokers Report: GENM - Improvement In UK and US Operations

Maintain neutral call with raise the target price (TP) to RM4.60

Genting Malaysia (GENM) reported a 70.3% increase in 3Q16 net profit to RM555.7m. Stripping out gain on disposal of assets, reversal of previously recognized impairment losses and tax relief on capex, 9M16 core net profit of RM960.3m came in within expectations. Its UK and US operations delivered stronger performance on the back of higher hold percentage, higher bad debt recovery and pick-up in business volume. We maintain our earnings forecasts for FY16-18F. However, we raise our SOTP-based TP to from RM4.05 to RM4.60 to factor in higher earnings multiples for its UK and US operations given the improvement in earnings visibility. We maintain our Neutral rating on GENM. We believe any meaningful earnings contribution from GITP Phase 1 project would only be felt towards end 2017.
  • 3Q16 revenue rose 8.5% YoY on stronger Leisure & Hospitality contribution. The group achieved a revenue of RM2.2bn, mainly due to a 41% increase in UK revenue to RM308m on the back of higher contribution from the premium players segment. Malaysian revenue was marginally higher, rising 4% to RM1,461.3m on higher hold percentage for the mid to premium segment although business volume was lower. Meanwhile, US & Bahamas registered a 3% increase in revenue to RM321.6m due to higher business volume at Resorts World Casino New York City. However, this was partially offset by cessation of Bimini SuperFast ferry operations. The favourable foreign exchange movement of USD against ringgit has also contributed to higher revenue for this segment.
  • 3Q16 adjusted EBITDA fell 21.7% YoY, mainly due to lower forex translation gains on the group's USD-denominated assets. Malaysia suffered a 5% decline in EBITDA to RM497.3m due to higher operating expenses for the mid to premium market. Casino business in the UK posted RM42.1m EBITDA compared to a loss in 3Q15 due to higher revenue and higher bad debt recovery. US & Bahamas reported RM24.2m EBITDA, compared to only RM4.5m in 3Q15 as it incurred lower operating expenses. GENM recognized a tax credit in the current quarter due to a RM159m tax allowance claim on its GITP project.
  • Maintain NEUTRAL. We maintain our core earnings forecasts for GENM. However, we raise our SOTP valuation from RM4.05 to RM4.60 as we ascribe higher PE multiples of 10-12x (from 8-10x) for its UK and US operations given the improvement in earnings visibility.

Source: PublicInvest Research - 25 November 2016

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