Genting Malaysia Bhd (Jan 14, RM4.13)

Maintain hold with an unchanged target price (TP) of RM4.30: It looks like Genting Malaysia Bhd will be busy with the opening of new key facilities in regard to the RM1 billion phase one of its RM5 billion Genting Integrated Tourism Plan (GITP).

Thus far, the 1,300-room three-star hotel is ready. For the second half of 2016 (2H16), we understand that the new cable car system, Sky Avenue and Sky Plaza shopping mall, and a multi-storey car park will be ready. The 20th Century Fox World theme park will, however, likely open in 2017.

The management expects the challenging operating environment in its UK operations to continue going forward. The UK operations typically contribute 10% of group earnings. However, the UK operations saw two consecutive quarters of losses due to sharp declines in volumes of VIP players, partly due to a shortage of VIP customers with China’s crackdown on corruption. In mitigation, the management is seeking to attract the premium mass market, but these efforts may still be insufficient to offset the steep decline in VIP volumes (third quarter 2015: -90% year-on-year [y-o-y]).

Despite the gloom in the UK, the strong performance of its domestic operations, which account for 80% of group earnings will underpin financial year ending Dec 31, 2016’s (FY16E) 4.1% earnings growth. Visitor arrivals have remained robust in 2015 despite work done for the GITP and we expect visitor arrivals to grow this year in anticipation of the new facilities due for opening. We note that Genting Malaysia will incur pre-opening expenses, thus capping earnings growth.

We maintain our “hold” call with an unchanged revised net asset value-based 12-month TP of RM4.30. The refurbishment of Resorts World Genting and the potential turnaround in Resorts World Bimini in the Bahamas are upside risks to our call. Key risks are the high foreign shareholding (39%), changes in the luck factor and changes to the GITP, which would represent swing factors to our earnings forecasts. — Affin Hwang Capital, Jan 14

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This article first appeared in The Edge Financial Daily, on Jan 15, 2016. Subscribe to The Edge Financial Daily here.

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