By Xavier Kong
Analysts have marked Genting Malaysia Bhd, subsidiary of Genting Bhd, as below expectations in terms of its third quarter of financial year (3Q15) results, with analysts noting that its UK operations were the cause of the slump, which could not be completely offset by foreign-exchange gains.
TA Securities downgraded GenM to a “sell” recommendation from a previous “hold” rating, also lowering its target price to RM4.07 from a previous RM4.30, on the back of the losses coming from the UK segment. TA opined that the contraction in gaming revenue from UK operations is due to a spillover effect from the corruption crackdown in China.
AllianceDBS Research and PublicInvest Research both maintained their respective “hold” and “neutral” calls on GenM, with the former, maintaining a target price of RM4.50, and the latter dropping their target price to RM3.66 from RM3.80.
Again, the statement remains that, after discounting the gains in foreign-exchange translations from the UK segment, as well as a deferred expense written off for the group’s Bimini operations, the UK segment had recorded a loss before interest, tax, depreciation, and amortisation (Ebitda) of RM148.5 million, which pushes the normalised nett profit of GenM to RM786 million for their nine months of financial year 2015, instead of the reported RM919.3 million.
It was noted by AllianceDBS that the group’s Genting Integrated Tourism Plan remains on track, with the group expected to launch the Sky Avenue and Sky Plaza shopping malls, as well as a new cable car station by 2016, and the 20th Century Fox World theme park between the end of 2016 and early 2017.
“We wish to highlight that the group has obtained regulatory approvals to set up additional gaming tables at Sky Plaza, although management disclosed minimal information on the additional gaming capacity obtained,” added AllianceDBS, noting the results of GenM as not surprising.
However, according to TA, management had highlighted that the depreciation of the ringgit will increase the overall capital expenditure of the theme park, as most of the rides are purchased from overseas. Still, GenM has managed to stay within the budget thus far.
UOB Kay Hian (UOBKH), who had maintained its “buy” rating and raised its target price to RM4.82 from RM4.76, noted that not only had GenM absorbed the full impact of the goods and services tax, but the quarter just ended had been the group’s best quarter since 1Q14, with an increase of more than 10% for the mass market gross gaming revenue year-on-year growth and margin expansion.
“Genting Highlands accounted for almost 100% of the group’s 3Q15 leisure and hospitality adjusted Ebitda as UK suffered losses and US operations made minimal contribution,” said UOBKH.
Moving forward, AllianceDBS and UOBKH anticipate better Ebitda margins from GenM, due to strong momentum from Genting Highlands, as well as a potential turnaround for the group’s UK operations.
TA noted, according to management, “after significant contraction in the business volume and hold percentage in UK, the company has seen improvement in October 2015.” However, TA was of the opinion that it is still too early to guide the earnings potential of Resorts World Birmingham, which had just opened on Oct 21, 2015.
As at 4.35pm, GenM’s shares were last traded at RM4.36, up 5 sen.
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