GentingM’s cost cutting to be seen in Q2 onwards

KUALA LUMPUR: Genting Malaysia’s cost-cutting results will be seen from 2QFY19 onwards as it implemented cost rationalisation initiatives that include reducing headcount, CIMB Equities Research says.

The research house said on Friday due to the 10 percentage point hike in casino duties from January this year, GentingM has been working on a number of initiatives in the first quarter to reduce costs.

As for the Equanimity yacht, the company said it is still working on a strategy on how best to utilise the asset. GentingM added that it is depreciating the yacht over a 30-year lifespan.

“There were no new updates on the fate of the new outdoor theme park (NOTP). The NOTP remains closed and if the delay is further prolonged, we believe GM may need to make a provision for the NOTP. GentingM has so far invested US$800m in the NOTP,” it said.

CIMB Research revised its  FY19-21F EPS by -0.1% to +0.7% for house-keeping purposes. Its RM3.25 RNAV TP was unchanged. The stock remains a Hold.
Re-rating catalysts include the opening of the NOTP in 2019 and higher cost savings, while de-rating catalysts include the NOTP failing to open in 2019 and losses from the Equanimity yacht.

Commenting on the results, 1QFY19 revenue rose 14.0% on-year to RM2.736bil, driven by domestic and US revenue growth. 

However, 1QFY19 net profit was down 25.7% on-year at RM268.2m, mainly due to i) a RM198.2m provision for termination-related costs for the outdoor theme park, and ii) RM17.8m in impairment losses, offset by a RM123.8m gain on sale of its London casino business. 

However, 1Q19 core profit fell by only 2.7% on-year to RM351.2m as higher VIP gaming profit helped offset the 10% increase in gaming tax effective Jan 1.

“Malaysia 1QFY19 EBITDA was up 4.1% on-year at RM555.6m, mainly due to an exceptionally high hold percentage in the mid-to-premium market segment. 

“Nevertheless, the gaming VIP business volume fell by 10% on-year, while the non-VIP volume fell by 6% on-year due to lower incentives offered to players as part of its cost rationalisation initiatives.

“Declines in the volume of VIP and non-VIP businesses would be a worry if the trend continues over the next few quarters,” CIMB Research said.

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