The group’s annualised 1HFY12 results were in line with both consensus and our expectations. Its core gaming operation in Malaysia reported double-digit growth in VIP gaming and mid single-digit growth mass market gaming. The current share price offers an excellent opportunity to accumulate, as its valuation is undemanding at 12.3x PE. The stock has de-rated by 14% over the past three months despite the buffer in its stable domestic mass market gaming revenue amid a period of global macroeconomic uncertainty. Maintain BUY with FV of RM4.21.
In line. Genting Malaysia’s annualised 1HFY12 net profit was in line with our full year forecast, representing 51.2% of our full year estimates and 50.8% of consensus, after adjusting for exceptional items which included pre-operating expenses of RM17.7m and RM48.2 in construction cost overruns from Resorts World at New York.
Solid sequential recovery. The group reported a sterling 90% q-o-q recovery in 2Q12 earnings despite slower q-o-q domestic VIP volumes as it benefited from stronger win rates from both its Malaysian and UK gaming operations, offsetting 1Q12’s performance which was impacted by lower domestic gaming win percentages.
Foreign gaming operations shine. Its UK gaming operation was a strong performer, registering a 278% q-o-q growth and 141% growth y-o-y in EBITDA. Casino attendance grew by 6% and, coupled with strong win rates, helped underpin the impressive growth. Its US casinos reported a 22.4% q-o-q growth in operating earnings on the back of a 5% improvement in average win/machine/day to USD375. Given the relatively impressive earnings delivery from its foreign gaming operations in the two countries, the company’s domestic gaming profit contribution was diluted to 75% in 2Q12 and 82% in 1HFY12 vs the 90% level in 1Q12.
Malaysian casino op resilient. In normalising the lower win rates, the group’s Malaysian casino operation, comprising the bulk of group earnings at 82%, reported double digit volume growth in VIP gaming and mid single-digit growth in mass market gaming. Lower win percentages in 1Q12, however, led to a 2% y-o-y decline in revenue. Meanwhile, overall visitor growth rose 2% y-o-y; foreign visitor growth was driven by Singapore (+4% y-o-y) and Indonesia (+11% y-o-y) as Genting faced competition from Singapore’s integrated resorts. Overall, domestic day trippers continue to contribute the bulk of the total visitor arrivals at a steady 74% and hotel occupancies remained relatively robust at 93%, which will be gradually addressed by the planned addition of another 700 hotel rooms over the course of the next three years, with a capex of RM100m p.a.
Source: OSK
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