GentingM 9M core net profit within forecast, TP reduced

KUALA LUMPUR: Genting Malaysia’s (GENM) nine months core net profit at 72% of full-year forecasts was  within the market’s and CIMB Equities Research’s expectations as it projects a stronger 4Q.
It said on Monday the company was hit by a RM1,896m impairment for the Mashpee Wampanoag Tribe promissory notes.

“Maintain Hold; TP falls from RM3.25 to RM2.92,” it said.

GENM’s 9M18 revenue was up 9.4% on-year at RM7,420mil, driven by strong domestic revenue growth, but it turned in a 9M18 net loss of RM843.7m.

The net loss was mainly due to a RM1,896m impairment on the group’s investment in the promissory notes issued by the Native American Mashpee tribe for the development of an integrated gaming resort in the US on a piece of tribal land. 

However, CIMB Research said the 9M18 core net profit was up 57.7% on-year at RM1,148m, mainly due to higher VIP arrivals.

“What was also a major disappointment to us was that management did not provide any guidance at all on the 20th Century Fox World outdoor theme park (slated to open in mid-2019) following news the company sued Disney and 21st Century Fox for more than US$1bn (RM4.2bn). 

“This is negative for the share price, at least in our view. However, the new indoor theme park is targeted to open in December,” it said.

The Malaysian domestic operations grew 8.3% on-year to RM4,821m, mainly due to higher gaming revenue. The VIP gaming market grew faster than the mass market. 

9M18 VIP revenue was 44% of domestic gaming revenue compared to 39% in 9M17. Domestic gaming revenue was 65% of the group's total gaming revenue. 

Its 3Q18 gaming VIP and mass market revenue was up 11% and 5% on-year, respectively.

CIMB Research said GENM’s visitor arrivals inched up 2% on-year in 3Q18, a disappointment compared to 1H18’s 21% on-year growth. On average, 72% of the visitor arrivals were day-trippers, in line with our expectations. 

“Average room rates were only up 2% on-year in 3Q18 compared to 15% on-year in 1H18 while China visitor arrivals rose 33% on-year to 150,000 compared to China and Indonesia’s 46% on-year rise in 2Q18. The slower visitor growth could become a concern.

“We cut FY18-20F EPS by 1.6-12% to reflect likely slower tourist arrivals with the likely delay in the opening of the new theme park. Our TP falls from RM3.25 to RM2.92 as we input a 10% discount to RNAV to reflect possibly further provision in the near future.

“The stock remains a Hold. A re-rating catalyst is the opening of the new theme park in 2019 while a de-rating catalyst is the theme park failing to open in 2019. Long-term charts show strong support for the stock at RM2.85 and RM2.20,” CIMB Research said.

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