Genting Malaysia : Profit growth is intact BUY

STOCK FOCUS OF THE DAY

Genting Malaysia : Profit growth is intact              BUY

Maintain BUY on Genting Malaysia (GenM) with an unchanged fair value of RM5.40/share. Our RNAV-based fair value assumes mainly a FY17F PE of 15.0x on the Malaysia unit's earnings.

We have forecast GenM's net profit to grow by 21.8% in FY17F underpinned largely by a 18.7% expansion in the EBITDA of the leisure and hospitality division in Malaysia. A low effective tax rate of 15.0% is also expected to support the group's net profit growth in FY17F. We anticipate visitor arrivals to improve by 8% in Resorts World Genting, Malaysia in FY17F. Visitor spending is also envisaged to rise in FY17F driven by the new Sky Avenue Shopping Mall and Genting Premium Outlet. A portion of the Sky Avenue Shopping Mall opened in late-December 2016 while Genting Premium Outlet is targeted for completion in 1QFY17. 

Accessibility is expected to be enhanced by new cable cars, which would shorten the time to reach the highlands resort. Now, the new cable cars only take about 15 minutes to reach Resorts World Genting compared with 10 minutes previously. We expect losses at Resorts World Bimini, Bahamas to decline in FY17F as the integrated resort cum casino gains traction among visitors. The unit has been in the red since FY13 due to an insufficient number of visitors, which resulted in a low volume of business. In spite of the heavy capex in Malaysia, GenM's balance sheet is expected to remain healthy. Cash flows generated from the new attractions would help finance capex in the coming years. So far, GenM has spent about RM3.1bil out of the capex of RM8.1bil allocated for Resorts World Genting. GenM had gross cash of RM3.7bil as at end-September 2016. Net gearing was a low 5%.

ECONOMIC HIGHLIGHTS

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Singapore : Cautious over export’s improvement

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