Uncertainties in UK may affect Genting Malaysia’s earnings
KUALA LUMPUR: Genting Malaysia Bhd's (Genting Malaysia) earnings may be affected by economic uncertainties in the United Kingdom (UK) particularly from Brexit and the recent election results.
AmInvestment Bank Bhd's research arm (AmInvestment Bank) pointed out that the depreciating value of the British pound and weakening consumer sentiments could affect Genting Malaysias earnings going forward.
“Since the UK election on June 8, 2017, the British pound has fallen by 2.6 per cent against the ringgit.
“We estimate that a five per cent decline in the pound would reduce the contribution of the UK unit by five to six per cent when the earnings are translated into ringgit.
“Genting Malaysia's financial year 2018 forecast (FY18F) net profit would inch down by one to two per cent,” it explained, noting that Genting Malaysia's leisure and hospitality unit in UK accounted for 22.6 per cent of its pre-tax profit in the first quarter of FY17 (1QFY17) and 14.3 per cent in FY16.
Apart from the depreciation of the pound, AmInvestment Bank believed that consumer sentiment and confidence in UK might be affected by economic uncertainties arising from Brexit. This could subsequently have an effect on casino visitation and spending in UK.
“Genting Malaysia's earnings in UK consist of contribution from the casinos in London, casinos in the various provinces and Resorts World Birmingham.
“Genting Malaysia's casinos in London recorded a 33 per cent y-o-y drop in revenue in pound in 1QFY17 due to a lower win percentage.
“Casino attendances rose by five per cent while the volume of business improved by eight per cent,” the research team said.
It also noted that Resorts World Birmingham's revenue improved by 35 per cent y-o-y to 8.5 million pound in 1QFY17.
“Resorts World Birmingham's loss narrowed from 2.6 million pound in 1QFY16 to one million pound in 1QFY17.
“On a quarterly basis, Resorts World Birmingham's earnings before interest, tax, depreciation and amortisation (EBITDA) swung from a positive 2.3 million pound in 4QFY16 to a loss of one million pound in 1QFY17,” it added.
However, it pointed out that revenue of the casinos at the provinces fell by four per cent yo-y in pound in 1QFY17 as casino attendances declined by six per cent.
Overall, AmInvestment Bank maintained a ‘sell' call on Genting Malaysia with an unchanged fair value of RM5.20 per share.