GENTING MALAYSIA BHD

CIMB Research Hold

Target Price: RM5.45

CIMB Research recently met up with the management of Genting Malaysia Bhd on its near-term earnings prospects, which mainly centered on the timeline for the opening of its multi-year renovation and development of the Genting Integrated Tourism Plan (GITP) project as well as key strategies for 2018.

The research house reckoned that the escalating operating and depreciation costs could outpace Genting’s revenue growth from its new facilities in the near term, thus putting pressure on margins, at least for the first half of 2018.

Following lacklustre earnings over the past few quarters, due to a poorer VIP hold rate percentage, CIMB said that there could be a sequential improvement in Genting earnings in fourth quarter 2017.

This is on the back of the normalisation of VIP win rates, tracking closer to its theoretical rate of about 2.5%-3% and seasonally higher business volumes for both the VIP and mass market due to year-end holidays and festivities.

To recap, in the third quarter of 2017 VIP volumes were up “double-digit” while nonVIP volumes were up “single-digit” quarter-on-quarter. CIMB said that Genting’s outdoor theme park to be the crown jewel for its non-gaming assets.

The group is aiming to re-open part of its indoor theme park will feature 18 new rides, before the 2018 Chinese New Year festivities (in mid-Feb).

The theme park would be fully operational by the first half 2018.

Nonetheless, CIMB said the Genting group reckoned that the catalytic crowd puller for its non-gaming assets would be its 20th Century Fox outdoor theme park, which will be ready to open by the end of this year.

Going forward, CIMB said that the park could further boost visitor arrivals, casino visitations and revenues.

Over the past few years, Genting has focused more on rewarding existing RWG members (which typically carry higher yields) rather than foreign visitors, particularly Chinese tourists.

CIMB said this has proven effective as of third quarter, mass market volume grew about 10% y-o-y from flat to 1% over the past few quarters. Nonetheless, Genting has shared that it will begin ramping up its efforts in marketing to Chinese tourists by second half of 2018, leading up to the opening of its outdoor theme park, which should drive more overall foot traffic.

CIMB maintained its “hold” call on Genting with no changes to its FY17-19 earnings forecasts. It expected that Genting would chart earnings growth of 24% y-o-y for FY18 forecast on the back of normalising VIP hold rates as well as gaming volumes for its casinos in Malaysia.