Genting Malaysia - Betting at right places BUY

- Maintain BUY on Genting Malaysia Bhd (GenM), with an unchanged RNAV-based fair value of RM4.30/share. 

- We believe that GenM’s operations in Malaysia would continue to drive the group’s profitability, although in declining proportions. 

- We estimate that 79% of GenM’s FY13F EBITDA would come from the leisure and hospitality division in Malaysia.

- Casinos in the United Kingdom (UK) are expected to account for 12% of GenM’s EBITDA while the balance 9% is forecast to come from  “Resorts World New York” (RWNY). 

- Going forward, EBITDA margin of “Resorts World Genting” may ease due to a larger proportion of contributions from the high-rollers’ segment. 

- VIPs accounted for 35% of gaming revenue in 1HFY12 compared with 25% to 30% in the past. 

- We reckon that RWNY may achieve and sustain EBITDA margins which are close to the 37% to 40% levels achieved by the operations in Malaysia, in the long-term.  

- RWNY’s margin enhancements are envisaged to be driven by its high daily wins per machine. 

- Excluding construction cost overruns, RWNY recorded an EBITDA margin of 42.7% in 2QFY12 and 23% in 1QFY12 on the back of high daily wins/machine. Daily wins/machine averaged US$387 in 3QFY12 versus US$375 in 2QFY12 and US$360 in 1QFY12. 

- Casino patronage and volume of business have improved at GenM’s casinos in the UK. The only risk is provisions for doubtful debts. 

- There are risks that customers from the Middle East and Asia may not be able to repay credit granted to them. Provisions for doubtful debts amounted to RM39mil (8 million pounds) in 1QFY12.  

- EBITDA margin of the UK operations improved from 12.8% in 1HFY11 to 20.2% in 1HFY12.

- Capex is forecast to increase from RM700mil in FY12F to RM1.1bil in FY13F as GenM is expected to start construction of the extension of the First World Hotel at end-FY12F or early-FY13F. Cost of the hotel extension is estimated at RM300mil over 2 ½ years.  

Source: AmeSecurities