genting malaysia 160308

8/19/2019 Genting Malaysia 160308

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LEISURE AND HOSPITALITY

GENT MALAYSIA(GENM MK) 8 March 2016

New attractions to underpin FY17F profit growth

Company report HOLD

Gan Huey Ling, CFA

[email protected]

03 2036 2305

(Maintained)

Rationale for report: Company Update

Price RM4.37Fair Value RM4.4552-week High/Low RM4.70/RM3.75

Key Changes

Fair value UnchangedEPS

YE to Dec FY15 FY16F FY17F FY18F

Revenue (RMmil) 8,395.9 9,109.7 9,892.7 10,893.0Net Profit (RMmil) 1,257.9 1,297.8 1,439.5 1,612.3EPS (sen) 21.2 21.9 24.2 27.2EPS growth (%) 5.8 3.2 10.9 12.0Consensus net (RMmil) 1,213.0 1,358.0 1,612.0 1,727.0DPS (sen) 7.1 7.5 8.0 10.0PE (x) 20.6 20.0 18.0 16.1EV/EBITDA (x) 12.6 13.0 11.9 10.8Div yield (%) 1.6 1.7 1.8 2.3ROE (%) 7.1 6.6 7.0 7.5Net gearing (%) 0.6 4.1 6.7 8.1

Stock and Financial Data

Shares Outstanding (million) 5,938.0

Market Cap (RM’mil) 25,949.1Book value (RM/share) 3.21P/BV (x) 1.2ROE (%) 7.1Net Gearing (%) 0.6

Major Shareholders Genting Bhd (49.3%)

Worldwide Fund (2.1%)

Free Float (%) 50.7 Avg Daily Value (RMmil) 21.1

Price performance 3mth 6mth 12mth

Absolute (%) +0.9 +8.5 +4.3

Relative (%) -0.5 +1.2 +11.1

Investment Highlights

Maintain HOLD on Genting Malaysia Bhd (GenM) with an

unchanged RNAV-based fair value of RM4.45/share. We

have raised GenM’s FY17F earnings by 7% to account for a

lower effective tax rate and higher number of visitors. We

have left GenM’s FY16F earnings forecast unchanged.

GenM’s effective tax rate is assumed to be low at 18% each

in FY16F and FY17F (FY15: 18.8%) due to the reinvestmentallowances in respect of the group’s capex at Resorts

World Genting, Malaysia.

We have forecast GenM’s net profit growth at a small 3% in

FY16F before climbing by a stronger 11% in FY17F. We

believe that GenM’s FY16F net profit would be unexciting

due to pre-operating expenses for new attractions, which

will be opening at Resorts World Genting in 2HFY16, full-

year impact of GST (Goods and Services Tax) and

lacklustre earnings from the UK division.

GenM’s FY17F earnings growth is expected to be

underpinned by the opening of the Sky Avenue ShoppingMall and Sky Way Cable Car Line in 2HFY16. 20

th Century

Fox World Theme Park is also targeted for opening in

FY17F although the exact date has yet to be finalised. We

have forecast EBITDA of the leisure and hospitality

division in Malaysia to improve by 3% in FY16F and 9% in

FY17F.

We have forecast combined losses at the UK and Bahamas

units at RM312mil in FY16F and RM275mil in FY17F.

Without losses of RM366.5mil from these two divisions, we

reckon that GenM’s EBITDA would have been higher by

RM366.5mil or 29% in FY15.

We believe that the UK division would continue to beaffected by a weak volume of business at the casinos in

London in FY16F.

A significant portion of the customers comes from China

and Middle East, which have been affected by the anti-

corruption campaign and the plunge in crude oil prices

respectively. As for Resorts World Birmingham, which

opened in October 2015, we think that it would take time to

grow.

We have assumed GenM’s capex at RM2.5bil each in

FY16F and FY17F. Most of the capex are for Resorts World

Genting, Malaysia. Capex for GenM’s overseas operationsis expected to be minimal. GenM has enough reserves to

finance its capex as reflected in the increase in gross cash

from RM2.8bil in FY14 to RM4.5bil in FY15. GenM issued

two tranches of medium term notes of RM1.1bil and

RM1.3bil in August 2015.



Genting Malaysia 8 March 2016

AmInvestment Bank Bhd 2

MAINTAIN HOLD WITH UNCHANGED FAIR

VALUE OF RM4.45/SHARE

We are keeping our HOLD recommendation on GentingMalaysia (GenM) with an unchanged RNAV-based fairvalue of RM4.45/share. Our fair value assumes an 18%discount to GenM’s RNAV of RM5.40/share.

The leisure and hospitality division in Malaysia accountsfor 83% of GenM’s RNAV while the value of GenM’s

shares in Genting Hong Kong (GenHK) accounts foranother 6%. GenM’s 17.8% investment in GenHK is worthabout US$457.9mil or RM1.9bil at a share price ofUS$0.32 and exchange rate of US$1.00: RM4.10.

We believe that GenM’s FY16F earnings would continue to

be driven by the leisure and hospitality unit in Malaysia.We reckon that the group’s subsidiaries in UK (UnitedKingdom) and Bahamas would continue to be in the red inFY16F.

GenM’s effective tax rate is expected to be low at 18.0% inFY16F (FY15: 18.8%) as the group claims reinvestmentallowances on its capital expenditure (capex) on ResortsWorld Genting, Malaysia. GenM’s capex is estimated at

more than RM2bil each in FY16F and FY17F.

In spite of the heavy capex, GenM’s balance sheet is

anticipated to be clean. The group’s gross cash stood at

RM4.5bil as at end-FY15. GenM raised RM2.4bil inmedium-term notes in August 2015.

UPDATES

FY17F earnings growth of Malaysia unit to be

underpinned by new attractions

We have forecast the EBITDA of GenM’s leisure and

hospitality division in Malaysia to rise by 9% in FY17F vs.3% in FY16F.

We have assumed that the number of visitors at ResortsWorld Genting, Malaysia would expand by 3% in FY16Fand 6% in FY17F. GenM’s target is to attract 30mil visitors

to Resorts World Genting by year 2020.

The stronger earnings growth in FY17F is expected to beunderpinned by the opening of the shopping mall andcable car line in 2HFY16. 20

th Century Fox World Theme

Park is also expected to open in FY17F although the exactopening date has yet to be finalised.

The three attractions are envisaged to improve the numberof visitors and revenue yields at Resorts World Genting,

Malaysia.

Sky Avenue Shopping Mall is expected to feature about165 units of retail outlets with net lettable area of 390,000sq ft in total.

The new cable car line, which will be called Sky Way, isanticipated to bring 4,000 to 7,000 people to Resorts WorldGenting every hour. 20

th Century Fox World Theme Park is

envisaged to feature more than 25 rides on 25 acres ofland.

We estimate that Sky Avenue Shopping Mall costs more

than RM500mil to build while the theme park would costmore than RM2bil to develop. Although the number ofrides at the theme park has not changed, the cost of thetheme park has climbed due to larger and more thrilling

CHART 1: FY15 GEOGRAPHICAL EBITDA BREAKDOWN (LEISURE AND HOSPITALITY DIVISION)

Malaysia, 100.6%

UK, -6.5%US, 5.9%

Source: Company, AmInvestment Bank Bhd





rides and the depreciation of the RM against foreigncurrencies.

We understand that 20% of Phase 1’s capex of RM8.1bilfor Resorts World Genting is denominated in foreigncurrencies. Of these, a large proportion is in USD.

Bahamas and UK operations are an earnings drag

Although the outlook for GenM’s Malaysia operations is

positive, the group’s units in Bahamas and UK are a dragon earnings.

We reckon that without the losses of RM124.2mil in UKand RM242.3mil in Bimini Island, Bahamas, GenM’s

EBITDA would have been higher by RM366.5mil or 29% inFY15. We have forecast losses of RM312mil andRM275mil for the two divisions in FY16F and FY17Frespectively.

Resorts World Bimini’s losses are expected to decline in

FY17F on the back of a higher volume of business. This isenvisaged to be supported by the opening of 100 rooms atHilton Hotel in mid-FY16F.

The resort cum casino in Bimini Island bled in FY15 due toinsufficient visitors. Visitors were partly discouraged by thelong ferry ride of three hours between Miami and BiminiIsland.

Resorts World Bimini’s current strategy is to tie up withairlines and speedier ferry operators. We estimate thatResorts World Bimini has 20 to 30 table games and 100slot machines and electronic table games.

In UK, the volume of casino business in London fell by15% in FY15 due to the anti-corruption campaign in China.We reckon that the fall in crude oil prices had also affectedthe patronage of customers from the Middle East. A largeportion of clientele at the casinos in London comes fromChina and Middle East.

Going forward, GenM’s strategy is to target the premiummass market for the casinos in London and increase itsmarket share for the casinos out of the city (home market).Volume of casino business in the home market rose by19% in FY15.

Resorts World Birmingham is anticipated to remain in thered in FY16F as it would take time to grow the business.The resort cum casino opened in October 2015. ResortsWorld Birmingham has about 30 gaming tables and 150slot machines and electronic table games.

Resorts World Birmingham also has cinemas, retail outletsand a conference centre for events up to 900 people.These are expected to draw crowds into the casino in thefuture.

Enough cash to finance capex in Malaysia

We have forecast GenM’s capex at RM2.5bil each in

FY16F and FY17F. The capex are mainly in respect ofResorts World Genting, Malaysia. Capex for the overseasoperations is expected to be minimal.

Capex at Resorts World Genting, Malaysia is anticipated tobe RM10.4bil over 10 years. Capex under Phase 1 isestimated at RM8.1bil while capex under Phase 2 wouldcover the balance RM2.3bil.

After 20th

Century Fox Theme Park is completed in FY17F,we believe that GenM would start developing a luxury hotelat the highlands resort.

Due to the heavy capex, GenM’s free cash flows are

estimated to be negative 5.5 sen/share in FY16F andnegative 3 sen/share in FY17F.

GenM has enough cash reserves to finance the capex atResorts World Genting, Malaysia. The group is flushedwith cash after the issuance of RM1.1bil five-year 4.5%MTN and RM1.3bil 10-year 4.9% MTN in August 2015.GenM’s gross cash stood at RM4.5bil as at end-December2015 while net gearing was 0.6%.





TABLE 1 : FINANCIAL DATA

Income Statement (RMmil, YE 31 Dec) 2014 2015 2016F 2017F 2018F

Revenue 8,229.4 8,395.9 9,109.7 9,892.7 10,893.0EBITDA 1,944.8 1,993.3 2,065.7 2,290.2 2,562.3Depreciation (607.8) (684.1) (737.1) (799.9) (883.6)Operating income (EBIT) 1,337.0 1,309.2 1,328.7 1,490.4 1,678.8Other income & associates 148.2 161.7 172.4 184.1 196.8Net interest 54.1 59.1 61.6 59.0 66.5Exceptional items (14.8) 0.0 0.0 0.0 0.0Pretax profit 1,524.5 1,530.0 1,562.7 1,733.5 1,942.1Taxation (384.2) (287.0) (281.3) (312.0) (349.6)Minorities/pref dividends 48.4 14.9 16.4 18.0 19.8Net profit 1,188.7 1,257.9 1,297.8 1,439.5 1,612.3Core net profit 1,203.5 1,257.9 1,297.8 1,439.5 1,612.3

Balance Sheet (RMmil, YE 31 Dec) 2014 2015 2016F 2017F 2018F

Fixed assets 7,426.5 10,475.1 12,238.0 13,938.2 15,554.6Intangible assets 4,482.2 5,367.3 5,367.3 5,367.3 5,367.3Other long-term assets 3,908.0 3,137.2 3,139.7 3,139.7 3,139.7Total non-current assets 15,816.7 18,979.5 20,745.1 22,445.2 24,061.6Cash & equivalent 2,789.3 4,599.7 3,993.8 3,535.4 3,284.9Stock 100.3 119.8 135.1 145.8 159.8

Trade debtors 133.3 1,035.8 539.1 585.4 644.6Other current assets 1,957.5 2,786.0 3,385.2 3,452.4 3,539.2Total current assets 4,980.5 8,541.2 8,053.2 7,719.1 7,628.5Trade creditors 402.2 2,647.7 586.7 633.2 693.8Short-term borrowings 207.1 784.0 823.2 864.3 907.5Other current liabilities 1,643.3 235.0 2,612.0 2,799.9 3,044.3Total current liabilities 2,252.7 3,666.7 4,021.9 4,297.4 4,645.7Long-term borrowings 1,411.1 3,840.9 3,917.7 3,996.0 4,076.0Other long-term liabilities 859.8 906.8 859.8 859.8 859.8Total long-term liabilities 2,270.9 4,747.7 4,777.5 4,855.8 4,935.8Shareholders' funds 16,304.3 19,080.4 19,956.6 20,950.7 22,028.6Minority interests (30.6) 25.9 42.3 60.3 80.1BV/share (RM) 2.75 3.21 3.36 3.53 3.71

Cash Flow (RMmil, YE 31 Dec) 2014 2015 2016F 2017F 2018F

Pretax profit 1,524.5 1,530.0 1,562.7 1,733.5 1,942.1Depreciation 607.8 684.1 737.1 799.9 883.6Net change in working capital (515.1) (212.9) (447.5) (538.4) (583.3)Others (76.5) (144.2) 364.8 392.7 441.8Cash flow from operations 1,540.7 1,857.0 2,217.1 2,387.7 2,684.1Capital expenditure (1,826.7) (2,496.7) (2,500.0) (2,500.0) (2,500.0)Net investments & sale of fixed assets (332.7) (321.4) 0.0 0.0 0.0Others 104.0 243.6 71.9 70.9 69.9Cash flow from investing (2,055.4) (2,574.5) (2,428.1) (2,429.1) (2,430.1)Debt raised/(repaid) (123.6) 2,663.2 26.8 28.4 29.9Equity raised/(repaid) (4.2) (61.6) 0.0 0.0 0.0Dividends paid (391.3) (356.7) (421.6) (445.4) (534.4)Others (12.4) (95.3) 0.0 0.0 0.0Cash flow from financing (531.5) 2,149.6 (394.8) (417.0) (504.5)Net cash flow (1,046.1) 1,432.1 (605.8) (458.4) (250.5)Net cash/(debt) b/f 3,720.1 2,770.3 4,518.9 3,913.1 3,454.7

Forex 96.5 316.6 0.0 0.0 0.0Net cash/(debt) c/f 2,770.4 4,518.9 3,913.1 3,454.7 3,204.2

Key Ratios (YE 31 Dec) 2014 2015 2016F 2017F 2018F

Revenue growth (%) -1.2 2.0 8.5 8.6 10.1EBITDA growth (%) -13.2 2.5 -0.2 10.9 11.9Pretax margins (%) 18.5 18.2 17.2 17.5 17.8Net profit margins (%) 14.4 15.0 14.2 14.6 14.8Interest cover (x) na na na na naEffective tax rate (%) 25.2 18.8 18.0 18.0 18.0Net dividend payout (%) 32.5 33.5 34.3 33.0 36.8Debtors turnover (days) 35 54 54 54 54Stock turnover (days) 6 7 7 7 7Creditors turnover (days) 116 152 152 152 152

Source: Company, AmInvestment Bank estimates





Published by

AmInvestment Bank Bhd (23742-V) (A member of the AmBank Group)

1 5 t h F l o o r B a n g u n a n A m B a n k G r o u p55 Jalan Raja Chulan50200 Kuala LumpurTel : ( 03)2070-24 44 ( r esearch)F a x : ( 0 3 ) 2 0 7 8 - 3 1 6 2

Printed by

AmInvestment Bank Bhd (23742-V)

(A member of the AmBank Group)1 5 t h F l o o r B a n g u n a n A m B a n k G r o u p55 Jalan Raja Chulan50200 Kuala LumpurTel : ( 03)2070-24 44 ( r esearch)F a x : ( 0 3 ) 2 0 7 8 - 3 1 6 2

The information and opinions in this report were prepared by AmInvestment Bank Bhd. The investments discussed or recommended inthis report may not be suitable for all investors. T his report has been prepared for information purposes only and is not an offer to sell ora solicitation to buy any securities. The directors and employees of AmInvestment Bank Bhd may from time to time have a position in orwith the securities mentioned herein. Members of the AmBank Group and their affiliates may provide service s to any company andaffiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources thatwe believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair andreasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted forany loss that may arise from the use of this report. All opinions and e stimates included in thi s report constitute our judgement as of thisdate and are subject to change without notice.

For AmInvestment Bank Bhd

Benny Chew

SR VP Equity Research

genting malaysia 160308

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