Genting Bhd
(May 24, RM6.28)
Maintain add with a lower target price of RM8.40: Genting Bhd’s first quarter of financial year 2019 (1QFY19) revenue was up 6.1% year-on-year (y-o-y) at RM5.57 billion, mainly due to higher domestic leisure and hospitality revenue (+19% y-o-y). However, 1QFY19 core net profit was down 1.5% y-o-y at RM593.6 million, mainly due to: i) lower domestic leisure and hospitality earnings (-1.6% y-o-y); and ii) weak Singapore leisure and hospitality earnings (-5.6% y-o-y); these were offset by higher UK earnings (+34.4% y-o-y).

1QFY19 reported net profit was down 6.8% y-o-y at RM561.6 million mainly due to: i) RM198.3 provision for termination-related cost for the highland’s outdoor theme park; ii) RM74 million loss on discounted cash flow hedge, offset by RM138.6 million gain on sale of its London Maxim casino.

1QFY19 Singapore gaming revenue was down 15.2% y-o-y, and a similar trend was seen in Malaysia. Domestic VIP gaming revenue was down more than 10% y-o-y while non-VIP revenue fell 6% y-o-y due to lower incentives given by Genting Malaysia as the group underwent a cost rationalisation exercise. If this trend continues over the next few quarters, it could be a major concern for Genting. However, gaming profit was strong mainly due to strong domestic VIP earnings in 1Q of 2019.

The construction of its new US casino, Resorts World Las Vegas (RWLV) is ongoing and is expected to be completed by end-2020. Genting is targeting to spend a total of US$4 billion (RM16.76 billion) on the construction of RWLV. As at end-2018, US$1 billion had been spent on RWLV. — CGSCIMB, May 24