GENM (4715) : Genting Malaysia - More bad luck in Genting
Target RM5.90 (Stock Rating: ADD)
Though 9MFY14 EPS formed 67% of our and consensus full-year forecasts, we deem this in line as 4Q should pick up given the school holidays. 9M14 was plagued by continuing poor VIP win rates in Malaysia, lower mass market visitation due to the theme park closure and larger losses for Bimini in 3Q. UK however, rebounded strongly in 3Q. We maintain our EPS forecasts, Add rating and RNAV-based target price unchanged. GENM is our top pick in the gaming sector, with a NY upstate casino win and new table capacity in Genting Highlands in 4Q15 as potential re-rating catalysts.
No end to poor VIP luck factor in Genting
Year-to-date GENM has been plagued by poor VIP win rates. 3Q also saw higher promotional cost for the VIP business. On a normalised-hold basis, 9M14 revenue would have risen 2% yoy while EBITDA margin would have been 38%, in line with its guidance. With the decline in mass market visitation due to the closure of the theme park, GENM has been vulnerable to volatility of the VIP business and its luck factor. This volatility will likely continue deep into FY15 until the new tables are introduced in end-15. The poor domestic performance was cushioned by strong showing in UK, with the benefit of a stronger pound and recovery in VIP revenues; provincial revenues are also showing signs of growth, in line with the recovery in the UK economy.
Bimini losses to taper off
Bimini continued to chalk up bigger losses qoq to RM62m in 3Q (RM52m in 2Q). We expect this to slowly fade as the new pier was opened in Sep 14 while the new 307 room hotel should be fully open in mid-2015. GENM expects Bimini to break even in FY15 vs. our forecast of break even in FY16. This could potentially present 4% upside to our FY15 earnings estimate.
Buy now ahead of positive newsflow
Our investment thesis remains intact. Management is quietly optimistic of a New York (NY) casino win by year-end, which should be a positive re-rating catalyst as consensus has not factored in any value for NY, while excitement about the GITP moving into FY15 should continue to keep investor interest alive. We believe the poor FY14 and flat FY15 earnings have been fully discounted by the market, evidenced by GENM’s underperformance this year.
Source: CIMB Daybreak - 24 November 2014
Target RM5.90 (Stock Rating: ADD)
Though 9MFY14 EPS formed 67% of our and consensus full-year forecasts, we deem this in line as 4Q should pick up given the school holidays. 9M14 was plagued by continuing poor VIP win rates in Malaysia, lower mass market visitation due to the theme park closure and larger losses for Bimini in 3Q. UK however, rebounded strongly in 3Q. We maintain our EPS forecasts, Add rating and RNAV-based target price unchanged. GENM is our top pick in the gaming sector, with a NY upstate casino win and new table capacity in Genting Highlands in 4Q15 as potential re-rating catalysts.
No end to poor VIP luck factor in Genting
Year-to-date GENM has been plagued by poor VIP win rates. 3Q also saw higher promotional cost for the VIP business. On a normalised-hold basis, 9M14 revenue would have risen 2% yoy while EBITDA margin would have been 38%, in line with its guidance. With the decline in mass market visitation due to the closure of the theme park, GENM has been vulnerable to volatility of the VIP business and its luck factor. This volatility will likely continue deep into FY15 until the new tables are introduced in end-15. The poor domestic performance was cushioned by strong showing in UK, with the benefit of a stronger pound and recovery in VIP revenues; provincial revenues are also showing signs of growth, in line with the recovery in the UK economy.
Bimini losses to taper off
Bimini continued to chalk up bigger losses qoq to RM62m in 3Q (RM52m in 2Q). We expect this to slowly fade as the new pier was opened in Sep 14 while the new 307 room hotel should be fully open in mid-2015. GENM expects Bimini to break even in FY15 vs. our forecast of break even in FY16. This could potentially present 4% upside to our FY15 earnings estimate.
Buy now ahead of positive newsflow
Our investment thesis remains intact. Management is quietly optimistic of a New York (NY) casino win by year-end, which should be a positive re-rating catalyst as consensus has not factored in any value for NY, while excitement about the GITP moving into FY15 should continue to keep investor interest alive. We believe the poor FY14 and flat FY15 earnings have been fully discounted by the market, evidenced by GENM’s underperformance this year.
Source: CIMB Daybreak - 24 November 2014
