Friday, 1 March 2013

Genting - Let down by GenS BUY

- Reiterate BUY on Genting Bhd with a higher RNAV-based fair value of RM10.60/share. We have reduced Genting Bhd’s holding company discount from 20% to 15%.

- In spite of our negative stance on Genting Singapore (GenS), we are keeping our BUY recommendation on Genting Bhd as its valuations are still palatable.

- In addition, Genting Bhd’s other subsidiaries such as Genting Malaysia (GenM) and Genting Plantations are trading at cheaper PE valuations compared to GenS.

- Genting Bhd’s FY12 core earnings were below our expectations and consensus estimates due to GenS’ weak results. EBITDA of the leisure and hospitality division fell 8.4% to RM6.3bil in FY12 mainly due to lower contributions from GenS.

- Included in the many exceptional items in Genting Bhd’s results is an RM1.9bil gain on disposal of the Genting Sanyen Power Plant in FY12.

- GenS accounted for about 53.1% of Genting Bhd’s casino EBITDA in FY12. This was followed by the leisure and hospitality division in Malaysia, which accounted for another 41.1%. The UK and New York units accounted for the balance 5.8% of group casino EBITDA in FY12.

- Apart from GenS, GenM also faced a squeeze in EBITDA margin in FY12. GenM’s EBITDA margin shrank from 38.9% in FY11 to 37.2% in FY12.

- We understand that GenM carried out more promotional events in FY12. The group also recorded an increase in the cost of salaries in FY12.

- GenM carried out more events to increase revenue yield and attract more visitors to the highlands resort. An example of an event held last year was the Oktoberfest Festival.

- GenM is still in planning stages for the extension of the First World Hotel. Although the group was planning to develop 700 rooms at the hotel initially, we understand that this may be revised.

- The extension of the First World Hotel would allow more hotel guests to stay at the highlands resort. Room capacity at “Resorts World Genting” is close to being fully utilised. Hotel occupancy rate was at 95% in FY12 versus 94% in FY11.

Source: AmeSecurities

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