GENM (4715) - Genting Malaysia - No luck in 2014
Target RM5.38 (Stock Rating: ADD)
GENM’s full-year core net profit of RM1.4bn was below our expectation at 92% of our forecast, but 4% above consensus’ estimate, due to poor VIP win rates in Malaysia and UK, and larger losses in Bimini. Its full-year dividend of 6.5 sen was below our forecast of 7.5 sen. We tweak our EPS forecasts but maintain our RNAV-based target price. GENM remains an Add and our top pick in the gaming sector, with new table capacity in Genting Highlands in 4Q15 as a potential re-rating catalyst. Any share price weakness should be viewed as a buying opportunity.
The worst is over
Despite the closure of the theme park in Genting Highlands, casino revenues in Malaysia only saw a marginal decline. VIP volume growth remained healthy (“double digit” growth) and was marred only by poor win rates. The underlying performance in UK was stable while losses at Bimini continued to plague the group (RM233m for FY14; RM67m loss in 4Q, 3Q: RM62m). Resorts World New York was dragged down by higher payroll cost following agreements with the union and redundancy costs in 4Q. GENM wrote off RM98m in project cost for the failed New York bid. Foreign arrivals from ASEAN fell, but this was mitigated by a marginal increase in the number Chinese tourists.
2015 outlook
We are encouraged by the continued improvement in casino volumes domestically, which suggests that the domestic franchise remains resilient despite the various cost pressures in Malaysia. Given the weak ringgit, GENM will continue to aggressively court Singapore and Chinese mass market customers in 2015. Bimini remains a wild card but should see a sharp improvement once its 300-room hotel opens in 1H15.
Look towards 2H15
We believe that the Miami state will decide soon if it will grant an extension to the Seminole tribe’s exclusivity to card games, which expires end-Jul 15. If the monopoly is extended, we believe that GENM will likely sell its land in Florida, which have appreciated sharply in value since its purchase during the GFC. Investors can also look forward to a jump in FY16 GGR when the introduction of the long-overdue gaming capacity comes onstream in late-15.
Source: CIMB Daybreak - 27 February 2015
Target RM5.38 (Stock Rating: ADD)
GENM’s full-year core net profit of RM1.4bn was below our expectation at 92% of our forecast, but 4% above consensus’ estimate, due to poor VIP win rates in Malaysia and UK, and larger losses in Bimini. Its full-year dividend of 6.5 sen was below our forecast of 7.5 sen. We tweak our EPS forecasts but maintain our RNAV-based target price. GENM remains an Add and our top pick in the gaming sector, with new table capacity in Genting Highlands in 4Q15 as a potential re-rating catalyst. Any share price weakness should be viewed as a buying opportunity.
The worst is over
Despite the closure of the theme park in Genting Highlands, casino revenues in Malaysia only saw a marginal decline. VIP volume growth remained healthy (“double digit” growth) and was marred only by poor win rates. The underlying performance in UK was stable while losses at Bimini continued to plague the group (RM233m for FY14; RM67m loss in 4Q, 3Q: RM62m). Resorts World New York was dragged down by higher payroll cost following agreements with the union and redundancy costs in 4Q. GENM wrote off RM98m in project cost for the failed New York bid. Foreign arrivals from ASEAN fell, but this was mitigated by a marginal increase in the number Chinese tourists.
2015 outlook
We are encouraged by the continued improvement in casino volumes domestically, which suggests that the domestic franchise remains resilient despite the various cost pressures in Malaysia. Given the weak ringgit, GENM will continue to aggressively court Singapore and Chinese mass market customers in 2015. Bimini remains a wild card but should see a sharp improvement once its 300-room hotel opens in 1H15.
Look towards 2H15
We believe that the Miami state will decide soon if it will grant an extension to the Seminole tribe’s exclusivity to card games, which expires end-Jul 15. If the monopoly is extended, we believe that GENM will likely sell its land in Florida, which have appreciated sharply in value since its purchase during the GFC. Investors can also look forward to a jump in FY16 GGR when the introduction of the long-overdue gaming capacity comes onstream in late-15.
Source: CIMB Daybreak - 27 February 2015
