Target RM5.70 (Stock Rating: ADD)
GENM's
FY13 was above expectations with core net profit 5% above our estimates
and within consensus expectations because of the favourable 4Q13 VIP
hold rate at Resorts World Genting (RWG). We are not revising our
forecasts and more comfortable with our FY15 EPS (25% above consensus)
following management's confirmation during the 4Q13 results conference
call that the additional 1,300 rooms will be opened in early 2015. The
additional rooms and the follow-through capex for the Genting Integrated
Tourism Plan (GITP) are potential catalysts. Our Add recommendation and
RNAV-based target price are maintained. GENM is our top pick in the
Genting group.
Resilient RWG
The key takeaway from the 4Q13 results was that GENM's EBITDA rose by a healthy 10% to RM544.7m despite the adverse underlying metrics- arrivals fell by 4% yoy in 4Q13 and hotel occupancy dropped to 85% in 4Q13 (vs. 96% in 4Q12) following the closure of the outdoor theme park. After adjusting for the favourable VIP hold rate, 4Q13 EBITDA would still be up by 7% yoy due to the higher VIP betting volumes and resilient mass gross gaming revenue (GGR). RWG is demonstrating its unique quality as a domestic casino monopoly and alternative VIP destination to Singapore.
UK and US riding economic recovery
The results of GENM's overseas operations were within expectations, at 17% of adjusted EBITDA in FY13. The UK operations compensated for the surprise losses of RM69m in 4Q13 from Resorts World Bimini, which is still ramping up after its opening in Jun. The 4Q13 adjusted EBITDA for the UK business doubled to RM92.5m, thanks to the favourable VIP hold rate and continued recovery in the UK economy. 4Q13 visitation was up 18% yoy for the London casinos and 35% yoy for the provincial properties.
Shares should re-rate as we get closer to FY15
We expect single-digit earnings growth for GENM in 2014. Although the losses in Bimini should subside and the US and UK operations will be supported by the economic recovery, we continue to be wary of cost pressures for RWG due to the implementation of the minimum wage and disruption to the business from the GITB rollout. We expect GENM's share price to re-rate for FY15 onwards, when its rising room and gaming capacities start to unlock value.
The key takeaway from the 4Q13 results was that GENM's EBITDA rose by a healthy 10% to RM544.7m despite the adverse underlying metrics- arrivals fell by 4% yoy in 4Q13 and hotel occupancy dropped to 85% in 4Q13 (vs. 96% in 4Q12) following the closure of the outdoor theme park. After adjusting for the favourable VIP hold rate, 4Q13 EBITDA would still be up by 7% yoy due to the higher VIP betting volumes and resilient mass gross gaming revenue (GGR). RWG is demonstrating its unique quality as a domestic casino monopoly and alternative VIP destination to Singapore.
UK and US riding economic recovery
The results of GENM's overseas operations were within expectations, at 17% of adjusted EBITDA in FY13. The UK operations compensated for the surprise losses of RM69m in 4Q13 from Resorts World Bimini, which is still ramping up after its opening in Jun. The 4Q13 adjusted EBITDA for the UK business doubled to RM92.5m, thanks to the favourable VIP hold rate and continued recovery in the UK economy. 4Q13 visitation was up 18% yoy for the London casinos and 35% yoy for the provincial properties.
Shares should re-rate as we get closer to FY15
We expect single-digit earnings growth for GENM in 2014. Although the losses in Bimini should subside and the US and UK operations will be supported by the economic recovery, we continue to be wary of cost pressures for RWG due to the implementation of the minimum wage and disruption to the business from the GITB rollout. We expect GENM's share price to re-rate for FY15 onwards, when its rising room and gaming capacities start to unlock value.
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