GENM (4715) : Genting Malaysia - Mixed signals
Target RM5.38 (Stock Rating: ADD)
GENM provided guidance on the negative impact of GST on FY15’s earnings, which it will absorb. This proved higher than our estimate and we reflect this accordingly in our FY15-16 forecasts. Also, a sizeable provision for costs associated with the failed NY casino bid will be made in 4QFY14. On the positive side, its land in Miami has appreciated strongly and approval has been given for the new gaming capacity. Our RNAV-based target price falls slightly to RM5.38 on lower FY16 EBITDA, mitigated by revaluation surplus for Miami. Maintain Add, with gaming capacity addition in late-2015 as a potential re-rating catalyst.
What Happened
GENM participated in our Malaysia Corporate Day conference yesterday and met with 10 fund managers. Questions surrounded the outlook for 2015 and updates on the timeline for the various Genting Integrated Tourism Plan (GITP) milestones. For the first time, GENM provided preliminary guidance on the negative impact of GST on its EBITDA. It estimates that FY15 EBITDA will be negatively affected by RM200m-300m, equivalent to c.3-4% pts of its Malaysian gaming EBITDA margin, which it will try to mitigate by cutting commissions to junkets. To offset domestic day-trippers potentially cutting back on gaming spending, management will be aggressively targeting Johor, Singapore and Chinese tourists/gamblers in 2015 given the weak ringgit. 4Q results will also see a ‘sizeable’ provision for costs associated with the failed New York (NY) bid, although no specific guidance was given. The timeline guidance for the GITP was mixed – the casino and Sky Avenue/Plaza will be ready by end-15/early-2016 while the theme park is likely to be ready only by end-2016, although some indoor rides might be ready earlier. A big positive was that the additional gaming capacity has been approved by the government.
What We Think
There could be downward pressure on GENM’s share price leading to 4Q results in late-Feb given consensus earnings downgrades to reflect the GST impact as well as uncertainty about the size of the one-off provision in 4Q. This provision is one-off and investors should not be unduly concerned as 4Q is typically used to kitchen-sink various expenses.
What You Should Do
Any share price weakness should be used to accumulate the stock. GENM remains our top pick. With the additional gaming capacity approved and on track to open by year-end, GENM should finally see a strong re-rating this year.
Source: CIMB Daybreak - 08 January 2015
Target RM5.38 (Stock Rating: ADD)
GENM provided guidance on the negative impact of GST on FY15’s earnings, which it will absorb. This proved higher than our estimate and we reflect this accordingly in our FY15-16 forecasts. Also, a sizeable provision for costs associated with the failed NY casino bid will be made in 4QFY14. On the positive side, its land in Miami has appreciated strongly and approval has been given for the new gaming capacity. Our RNAV-based target price falls slightly to RM5.38 on lower FY16 EBITDA, mitigated by revaluation surplus for Miami. Maintain Add, with gaming capacity addition in late-2015 as a potential re-rating catalyst.
What Happened
GENM participated in our Malaysia Corporate Day conference yesterday and met with 10 fund managers. Questions surrounded the outlook for 2015 and updates on the timeline for the various Genting Integrated Tourism Plan (GITP) milestones. For the first time, GENM provided preliminary guidance on the negative impact of GST on its EBITDA. It estimates that FY15 EBITDA will be negatively affected by RM200m-300m, equivalent to c.3-4% pts of its Malaysian gaming EBITDA margin, which it will try to mitigate by cutting commissions to junkets. To offset domestic day-trippers potentially cutting back on gaming spending, management will be aggressively targeting Johor, Singapore and Chinese tourists/gamblers in 2015 given the weak ringgit. 4Q results will also see a ‘sizeable’ provision for costs associated with the failed New York (NY) bid, although no specific guidance was given. The timeline guidance for the GITP was mixed – the casino and Sky Avenue/Plaza will be ready by end-15/early-2016 while the theme park is likely to be ready only by end-2016, although some indoor rides might be ready earlier. A big positive was that the additional gaming capacity has been approved by the government.
What We Think
There could be downward pressure on GENM’s share price leading to 4Q results in late-Feb given consensus earnings downgrades to reflect the GST impact as well as uncertainty about the size of the one-off provision in 4Q. This provision is one-off and investors should not be unduly concerned as 4Q is typically used to kitchen-sink various expenses.
What You Should Do
Any share price weakness should be used to accumulate the stock. GENM remains our top pick. With the additional gaming capacity approved and on track to open by year-end, GENM should finally see a strong re-rating this year.
Source: CIMB Daybreak - 08 January 2015
