Genting Malaysia’s Q1 FY17 core earnings below forecast

KUALA LUMPUR: Genting Malaysia’s 1Q17 core earnings were below CIMB Equities Research and market’s expectations.

The research house said on Tuesday the group’s softer performance was mainly due to the weaker showing from its UK business, which experienced lower hold percentage and unfavourable forex.

“We lower our FY17-18F EPS by 2%-6% to account for higher operating costs and to factor in the delay of its outdoor theme park to end-1H18 (from end-2017).

“Downgrade to Hold as we think the share price currently reflects the near-term earnings prospects from its Genting Integrated Tourism Plan (GITP) properties,” it said.

Genting Malaysia’s reported 1Q17 revenue and core net profit, which grew by 0.4% and 11.4% year-on-year to RM2.2bil and RM334.5mil, respectively. This was below expectations, making up 18% of CIMB Research and 21% of the market’s full-year forecasts. 

It pointed out that Genting Malaysia’s domestic business impacted by higher operating costs

The Malaysian gaming business experienced a revenue increase of 3% year-on-year to
RM1.3bil but adjusted earnings before interest, tax, depreciation and amortisastion (Ebitda) fell 3.2% year-on-year to RM451.1mil. 

This was mainly due to higher costs relating to the premium players business and costs incurred for the new facilities under its GITP. 

“The VIP vs. mass market mix was 42%:58% for 1Q17. On a normalised hold-adjusted basis, revenue would have declined by 2% with Ebitda falling 13%. 1Q17 Ebitda margin would have been 34% (vs. reported 32.5%),” it noted.

The 1Q17 visitor arrivals decreased marginally by 2% year-on-year to 4.8 million visitors. All in, 1Q17’s average room rates remained flat year-on-year at RM93 a night and the majority of it was taken up by its loyalty card members (73%).

The group’s UK business saw revenue decline 11.7% year-on-year due to the weaker pound sterling versus Ringgit exchange rate as well as lower hold percentage in spite of a higher volume of business in its high-end markets. 

Accordingly, 1Q17 adjusted Ebitda fell 21.1% year-on-year which was partially mitigated by higher bad debts recovery in 1Q. On another note, Genting Malaysia’s North American business registered higher 1Q17 adjusted Ebitda of RM41.4m on the back of higher revenue from Resort World New York (RWNY) and lower losses from Bimini.

“Following the weaker-than-expected results, we lower our FY17-18F EPS forecast by 2%-6% to account for: i) higher operating costs; ii) lower profits from Genting UK and iii) factoring in the delay of the opening of the outdoor theme park, which we understand has been pushed back to end-1H18 (from end-2017).

“Accordingly, our RNAV-based target price is lowered slightly to RM6.05 (from RM6.14) after we adjust for lower FY18 Ebitda for Malaysia. Thus, we downgrade to Hold from Add as we believe the share price currently reflects the group’s near-term earnings prospects from its GITP properties. 

“Key upside risk includes higher-than-expected visitor arrivals for its regional and domestic businesses while key downside risks include further delays in the construction of new properties under the GITP,” it said.