Genting M sia GENM MK Sector: Gaming

Transcription

1 Rising star, but looks fairly valued for now Despite raising our TP to RM6.00, we are downgrading Genting Malaysia (GENM) to HOLD from Buy, as we believe the stock is fairly valued; hence the limited upside potential to our new TP. While the company s prospects still look strong, we think any significant upside would only materialise in 2H18, as the 20 th Century Fox theme park in Genting Highland should only be operational by end Growth has helped to kick-start change in market sentiment Market sentiment on GENM seems to have improved in the past few months, as more may think growth will improve when more facilities under the Genting Integrated Tourism Plan (GITP) become operational, despite core EBITDA only growing by 5.3% yoy in Although we expect core EBITDA growth of only 5.8% yoy in 2017, we look for it to rise significantly to 21% yoy in 2018, post the opening of the 20 th Century Fox theme park in the Highlands, expected by end Macro environment tilts towards advantage for GENM Apart from the First World Tower 3 opening in 2015, amenities are being added throughout Despite the lack of new amenities in 2016, overall visitation still grew by 5% yoy, which we believe was due to an increase in both local and foreign visitors, as the weaker Ringgit has made Genting Highland a cheaper alternative to its regional peers. We expect the USD/MYR to trade between in Overseas operation should be positive for growth Genting s US and UK operations have continued to see positive EBITDA growth, even though their combined contribution was only 15% of the group s core EBITDA. As growth from the UK operations and RWNY remain intact, Genting should be able to compensate for the losses from its Bimini venture. Management has indicated that the venture is taking longer than expected to break even, but losses remained flat in Downgrade to HOLD but with a higher TP of RM6.00 We revise up our 12-month TP to RM6.00 as a result of our E EPS increases of % on higher growth assumptions to factor in stronger visitations over the forecast period. We also tweak our 2017 EPS forecast to factor in lower margins from the additions of new amenities. Despite our higher TP, we are downgrading our call to HOLD from Buy as we view the stock as fairly valued after its strong rally ytd. The biggest upside risk to our Hold call would be the passage of a gaming law in the US state of Florida, while the biggest downside risk would be any unforeseen delays to the 20 th Century Fox theme park. Earnings & Valuation Summary FYE 31 Dec FY15 FY16 FY17E FY18E FY19E Revenue (RMm) 8, , , , ,758.6 EBITDA (RMm) 2, , , , ,488.5 Pretax profit (RMm) 1, , , , ,284.4 Net profit (RMm) 1, , , , ,953.2 EPS (sen) PER (x) Core net profit (RMm) 1, , , , ,958.2 Core EPS (sen) Core EPS growth (%) (0.1) Core PER (x) Net DPS (sen) Dividend Yield (%) EV/EBITDA (x) Company Note Genting M sia GENM MK Sector: Gaming 28 Apr 2017 HOLD (downgrade) Upside: 2 % Price Target: RM6.00 Previous Target: RM5.60 (RM) May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 Jan-17 May-17 Price Performance 1M 3M 12M Absolute 7.7% 18.1% 33.1% Rel to KLCI 6.0% 11.6% 25.9% Stock Data Issued shares (m) 5,668 Mkt cap (RMm)/(US$m) 33,274/7,682 Avg daily vol - 6mth (m) wk range (RM) Est free float 50.5% BV per share (RM) 3.50 P/BV (x) 1.67 Net cash/ (debt) (RMm) (529.1) ROE (2017E) 7.4% Derivatives No Shariah Compliant No Key Shareholders GENTING BHD 49.3% Source: Affin Hwang, Bloomberg Ng Chi Hoong (603) chihoong.ng@affinhwang.com Chg in EPS (%) Affin/Consensus (x) Source: Company, Affin Hwang forecasts, Bloomberg Page 1 of 13

2 Improved sentiment We revise up our 12-month SOTP-based TP to RM6.00 from RM5.60, as we now assign Genting s Malaysia operation a higher FY17E EV/EBITDA multiple of 12x (from 11x) on expectations of stronger visitation growth. We are making no change either to our valuation of its overseas casino at an 8x EV/EBITDA or the current book value of its non-core asset investment. Upside risks to our call would include the passage of a gaming law in the US state of Florida, better-than-expected visitation numbers, and betterthan-expected performance at Genting s associates. Downside risks would include unexpected delays in the opening of its new 20 th Century Fox theme park, worse-than-expected results at associates, and a default on its First Light Resort and Casino promissory note. Fig 1: GENM SOTP valuation Equity stake EBITDA FY17E Valuation Method Value (RM mn) Per share (RM) Malaysia operation 100.0% 2,036 12x EV/EBITDA 24, Resort World New York (RWNY) 100.0% 426 8x EV/EBITDA 3, UK 100.0% 289 8x EV/EBITDA 2, Miami Property 100.0% Book Value 2, First Light Resort and Casino promissory note 100.0% Book Value 1, Total enterprise value 34, Less: (net borrowings)/cash (639) (0.11) Equity value / Price Target 33, No of shares (m) 5,668 Source: Affin Hwang estimates and forecasts Fig 2: Breakdown of GENM SOTP valuation (%) First Light Resort and Casino promissory note 4% Miami Property 8% UK 7% RWNY 10% Cash -2% Malaysia operation 69% Page 2 of 13

3 Fig 3: Asia-Pacific gaming sector: valuation comparison Share Price Target Price Mkt Cap Mkt Cap PER (x) EV/EBITDA (x) Div Yield (%) 3yr-EPS 3-yr EBITDA Bbg code Company Name (lcy) (lcy) Up/(Down)side Recom. (lcy mn) (USD mn) FY17E FY18E FY19E FY17E FY18E FY19E FY17E FY18E FY19E CAGR (%) CAGR (%) Malaysia GENM MK Genting Malaysia Bhd* Hold 33,274 7, Singapore GENS SP Genting Singapore Plc 1.12 na na Not-Rated 13,408 9, Philippines RWM PM Travellers International Hot 3.30 na na Not-Rated 51,994 1, BLOOM PM Bloomberry Resorts Corp 9.00 na na Not-Rated 99,015 1, PLC PM Premium Leisure Corp 1.56 na na Not-Rated 49, na na na na na na na na na na na Cambodia 3918 HK Nagacorp Ltd 4.31 na na Not-Rated 10,603 1, Korea KS Kangwon Land Inc** 36,150 43, Buy 7,733,949 6, KS Grand Korea Leisure Co Ltd** 21,700 25, Outperform 1,342,268 1, KS Paradise Co Ltd** 14,100 15, Outperform 1,282,292 1, AUS/NZ SKC NZ Skycity Entertainment Group 4.36 na na Not-Rated 2,910 1, CWN AU Crown Resorts Ltd na na Not-Rated 9,070 6, SGR AU Star Entertainment Grp Ltd/T 5.57 na na Not-Rated 4,599 3, Macau MLCO US Melco Resorts & Entert-Adr** Hold 10,799 10, HK Galaxy Entertainment Group L** Hold 185,222 23, HK Sands China Ltd** Buy 284,963 36, HK Mgm China Holdings Ltd** Hold 67,336 8, HK Wynn Macau Ltd** Hold 88,843 11, HK Sjm Holdings Ltd** Hold 42,712 5, Average Mkt-cap Average Source: *Affin Hwang forecasts, Bloomberg Note: Pricing as of 28 Apr 2017 Note: SKC NZ, CWN AU and SGR AU estimates are from June/FY17E June/FY19E Note: When a report covers six or more subject companies please access important disclosures for Daiwa Capital Markets Hong Kong Limited at or contact your investment representative or Daiwa Capital Markets Hong Kong Limited at Level 26, One Pacific Place, 88 Queensway, Hong Kong. Page 3 of 13

4 Improving outlook Fig 4: Genting estimate revisions Malaysia RWNY (US) Bimini (US) UK New Previous Change 2017E 2018E 2017E 2018E 2017E 2018E Number of visitors (mn) % 10% Revenue (RM mn) 6,092 7,020 5,872 6,444 4% 9% Adj EBITDA (RM mn) 2,041 2,387 2,055 2,255-1% 6% Adj EBITDA margin (%) 33.5% 34.0% 35.0% 35.0% -150bps -100bps Net wins (US$m) ,007-3% -8% Adj EBITDA (US$m) % -8% Adj EBITDA margin (%) 40.0% 40.0% 40.0% 40.0% 0% 0% Revenue (US$m) % -22% Adj EBITDA (US$m) % 313% Adj EBITDA margin (%) % -75.0% -65.3% -15.0% bps -6000% Number of visitors (mn) % -4% Revenue (GBPm) % -3% Adj EBITDA (GBPm) % 11% Adj EBITDA margin (%) 14.8% 14.8% 13.0% 13.0% +180bps +180bps Source: Affin Hwang estimates and forecasts Malaysia We are lowering our EBITDA margin forecasts by 100bps each to 34%, to factor in the higher costs related to the added amenities under the GITP program. We lower our absolute 2017E EBITDA due to the changes, but our 2018E EBITDA is increased on higher visitation numbers (see Fig 4). Fig 5: Reductions in E EBITDA margins mainly due to higher operating costs related to new amenities Adj EBITDA margin 40% 39% 38% 37% 36% 35% 34% 33% 32% 31% 30% Fig 6: However, we don t expect the margin declines to have a negative impact on EBITDA, due to stronger revenue and visitation growth Adj EBITDA (RM mn) 2,700 2,600 2,500 2,400 2,300 2,200 2,100 2,000 1,900 1,800 We are also more optimistic on the visitation outlook, due to several reasons that are in favor of Genting Highlands. We have started to notice the benefits of this impact, as visitation still managed to grow by 5% yoy in 2016, despite limited new amenities. Page 4 of 13

5 Fig 7: Key GITP amenities (Phase I) and completion dates Amenity Estimated completion date Comments 1,300-room 3-star Opened in June 2015 Fully operational, with >90% occupancy rate hotel Sky Avenue Progressively open from end of 2016 A few floors are already open and tenanted, with the remaining to be open by year-end Sky Plaza Progressively open from end of floors for the mass market are already operational, with the remaining 2 floors for the premium-mass/vip to be operational by yearend New cable car End of 2016 Fully operational system Genting Premium Outlet May 2017 Not expecting any delay from the targeted May 2017 opening date 20 th Century Fox End of 2017 Construction in progress Theme Park Power sub-station Progressively being commissioned Construction in progress Water treatment plant Progressively being commissioned Construction in progress Source: Affin Hwang, Company Data Fig 8: Newly opened Sky Plaza (1) Fig 9: Newly opened Sky Plaza (2) Source: Affin Hwang Source: Affin Hwang Fig 10: Newly opened Sky Plaza (3) Fig 11: Newly opened Sky Plaza (4) Source: Affin Hwang Source: Affin Hwang Page 5 of 13

6 Weak Ringgit We expect the MYR/USD to remain an average of for the year. At this level, we think Genting Highland would have a competitive advantage versus its regional peers, as it could discourage local gamblers from going abroad and improve its value proposition for overseas tourists.. Fig 12: MYR has depreciated significantly, which should be beneficial to GENM, as it could improve its competitiveness for foreign visitors (RM/USD) Fig 13: Visitations should pick up with added amenities and the gaming hall, which would improve the attractiveness of Genting Highland (mn) Source: Bloomberg More hotel rooms opening We understand that there are to be an additional 650 hotel rooms available by end of the year 400 refurbished rooms in the Theme Park hotel, which was previously closed to facilitate the construction of the new theme park, and 250 premium suites, which are under construction. We estimate that this would increase Genting s total available rooms by 7%, which we think is crucial as it has close to a 93% occupancy rate. Fig 14: Available rooms should increase on reopening of old theme park hotel and opening of 250 premiumsuite hotel # of available room ('000) 4,100 3,900 3,700 3,500 3,300 3,100 2,900 2,700 2,500 Fig 15: Given Genting s high occupancy rates, new rooms should help to convert more daytrippers to overnight guests, which could lead to higher spending Occupancy rate 96% 95% 94% 93% 92% 91% 90% 89% 88% 87% Effects of regional tensions Bejing has banned Chinese tour groups from visiting South Korea, as China escalates its retaliation against the Korea s deployment of the USbuilt Thaad missile shield. We think this change will benefit Genting Highland, as the increase in tourists to Malaysia could be an incremental Page 6 of 13

7 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 Jan-13 May-13 Sep-13 Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15 Jan-16 May-16 Sep-16 positive for visitation growth since Genting Highland is a major attraction among Chinese tourists. Fig 16: We believe Genting could benefit from the increase in China tourist arrivals Fig 17: 34% of hotel guests in 2016 were tourists (th people) Others 34% Malaysian 66% Source: Company Data Target of 30m visitations a year by 2020 looks overly optimistic Despite these positive factors, we still think that the company s target of 30mn visitations a year is still an overly optimistic target. We do expect stronger tourist growth in the initial years after the opening of the theme park, and look for it to normalize in the following years. As such, we are taking a conservative view on the visitation numbers for now (see Fig 4). Fig 18: Revenue/visitation expected to remain flat Revenue / Visitation (RM) Fig 19: indicating that growth would be mainly through increased visitation Visitation (mn) AffinHwang Est Company Est USA and Bimini Management has installed 499 video game machines (VGM) out of a planned total of 1,000 at Genting s Resort World Casino New York City (RWNY) under its new agreement with the New York State and the Nassau Off-Tracking Betting Corporation. Although these machines technically belong to Nassau, most of the economic benefits should be no different than if they were under RWNY s control. While RWNY is obligated to pay rental fees to Nassau for the machines, we think the arrangement will benefit RWNY as it would receive a bigger share of the net wins and would be allowed to receive an additional 1% of Page 7 of 13

8 the net wins from the VGMs as a capital allowance. Hence, we think it made economic sense to replace RWNY s machines with the rented machines from Nassau. We are keeping our overall net-win growth rate for RWNY at 3-4% yoy, in line with the growth rate for the past 2 years, even though we expect RWNY to add more rented and owned machines. RWNY has the option to install 1,000 rented machines from Nassau under its agreement with New York State. Fig 20: Net gaming revenue (US$mn) still growing for RWNY despite being open for more than 5 years Net win (USD mn) 900 Fig 21: Number of VGMs at RWNY site remain flat YoY, despite the inclusion of the rented VGMs # VGM 6, , , ,600 2,600 5,003 5,005 5,003 5,525 5, , Source: NYS Gaming Commission Source: NYS Gaming Commission In Miami, Florida, apart from winning development rights to the one-acre land parcel adjoining its 30-acre site to build a 300-room hotel, there have been no other significant developments recently. We believe the new investment will help to showcase GENM s commitment to Florida state and Miami-Dade county, which might help Genting s efforts to push for revised gaming laws in Florida. UK The UK operation saw a significant uplift in EBITDA in 2016, surpassing our expectation due to better performance and favorable currency movement. Management has said there would be no change to its recent credit policy, as it is de-emphasizing the significance of VIP players. Its local-currency revenue grew by more than 45% yoy in 2016, after allowing premium mass players to enter exclusive clubs (casinos) that were previously only accessible to VIP clients. The strategy will likely be unchanged given the encouraging results. Page 8 of 13

9 Fig 22: Change in strategy has revived UK revenue growth GBP mm Fig 23: As such, we believe the worst is over, with EBITDA bottoming out since 2015 GBP mm Source: Company, Affin Hwang forecasts Source: Company, Affin Hwang forecasts Page 9 of 13

10 Genting Malaysia - FINANCIAL SUMMARY Profit & Loss Statement Key Financial Ratios and Margins FYE 31 Dec (RMm) E 2017E 2018E 2019E FYE 31 Dec (RMm) E 2017E 2018E 2019E Revenue 8,396 8,932 9,502 10,876 11,759 Grow th Operating expenses -6,241-5,206-6,972-7,781-8,275 Revenue (%) EBITDA 2,155 3,726 2,530 3,095 3,484 EBITDA (%) (32.1) Depreciation ,159-1,268 Core net profit (%) (0.1) EBIT 1,471 2,925 1,537 1,936 2,216 Net int inc/(exp) Profitability Associates' contribution EBITDA margin (%) Exceptional items PBT margin (%) Pretax profit 1,530 3,091 1,624 1,994 2,285 Net profit margin (%) Tax Effective tax rate (%) Minority interest ROA (%) Net profit 1,258 2,721 1,551 1,887 1,953 Core ROE (%) ROCE (%) Balance Sheet Statement Dividend payout ratio (%) FYE 31 Dec (RMm) E 2017E 2018E 2019E Fixed assets 10,475 12,159 14,567 15,784 16,384 Liquidity Other long term assets 8,504 9,607 9,607 9,607 9,607 Current ratio (x) Total non-curr assets 18,979 21,765 24,174 25,391 25,991 Op. cash flow (RMm) 2, , , , ,483.5 Free cashflow (RMm) (639.7) (707.9) (341.2) ,517.2 Cash and equivalents 7,154 5,455 4,294 4,740 5,731 FCF/share (sen) (11.3) (12.5) (6.0) Stocks Debtors 1, Asset management Other current assets Debtors turnover (days) Total current assets 8,541 6,129 5,011 5,559 6,617 Stock turnover (days) Creditors turnover (days) Creditors 2,648 2,739 2,913 3,335 3,605 Short term borrow ings 784 1,103 1,103 1,103 1,103 Capital structure Other current liabilities Net gearing (%) n.m. n.m. n.m. n.m. n.m. Total current liab 3,667 4,032 4,207 4,628 4,898 Interest cover (x) n.m. n.m. n.m. n.m. n.m. Long term borrow ings 3,841 3,223 3,223 3,223 3,223 Other long term liabilities Quarterly Profit & Loss Total long term liab 4,748 4,117 4,117 4,117 4,117 FYE 31 Dec (RMm) 4QFY15 1QFY16 2QFY16 3QFY16 4QFY16 Revenue 2, , , , ,282.9 Shareholders' Funds + MI 19,106 19,745 20,861 22,205 23,592 Operating expenses (1,770.6) (1,770.0) (1,572.4) (1,617.0) (1,539.3) EBITDA Cash Flow Statement Depreciation (186.4) (188.1) (177.7) (196.3) (238.6) FYE 31 Dec (RMm) E 2017E 2018E 2019E EBIT EBIT 1,471 2,925 1,537 1,936 2,216 Int expense Depreciation & amortisation ,159 1,268 Associates' contribution Working capital changes Exceptional items (56.7) (18.7) (12.6) ,253.0 Cash tax paid Forex gains/(losses) Others , Pretax profit ,796.8 Cashflow frm operation 1,857 2,409 3,060 3,250 3,386 Tax (11.8) (118.0) (46.8) 12.5 (137.6) Capex -2,497-3,117-3,402-2,375-1,868 Minority interest (7.4) Disposal/(purchases) Net profit ,686.4 Others -78 1, Core net profit Cash flow frm investing -2,575-1,307-3,280-2,283-1,765 Debt raised/(repaid) 3, Margins (%) Equity raised/(repaid) 0 1, EBITDA Net int inc/(exp) PBT Dividends paid Core net profit Others , Cash flow from financing 2, Free Cash Flow ,517 Source: Company, Affin Hwang forecasts Page 10 of 13

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Ownership of Securities For Ownership of Securities information please visit BlueMatrix disclosure link at Investment Banking Relationships For Investment Banking Relationships please visit BlueMatrix disclosure link at DCMA Market Making For DCMA Market Making please visit BlueMatrix disclosure link at Research Analyst Conflicts For updates on Research Analyst Conflicts please visit BlueMatrix disclosure link at The principal research analysts who prepared this report have no financial interest in securities of the issuers covered in the report, are not (nor are any members of their household) an officer, director or advisory board member of the issuer(s) covered in the report, and are not aware of any material relevant conflict of interest involving the analyst or DCMA, and did not receive any compensation from the issuer during the past 12 months except as noted: no exceptions. Research Analyst Certification For updates on Research Analyst Certification and Rating System please visit BlueMatrix disclosure link at The views about any and all of the subject securities and issuers expressed in this Research Report accurately reflect the personal views of the research analyst(s) primarily responsible for this report (or the views of the firm producing the report if no individual analyst is named on the report); and no part of the compensation of such analyst (or no part of the compensation of the firm if no individual analyst is named on the report) was, is, or will be directly or indirectly related to the specific recommendations or views contained in this Research Report. For stocks and sectors in Malaysia covered by Affin Hwang, the following rating system is in effect: Stocks: BUY: Total return is expected to exceed +10% over a 12-month period HOLD: Total return is expected to be between -5% and +10% over a 12-month period SELL: Total return is expected to be below -5% over a 12-month period NOT RATED: Affin Hwang Investment Bank Berhad does not provide research coverage or rating for this company. Report is intended as information only and not as a recommendation Sectors: OVERWEIGHT: Industry, as defined by the analyst s coverage universe, is expected to outperform the KLCI benchmark over the next 12 months NEUTRAL: Industry, as defined by the analyst s coverage universe, is expected to perform inline with the KLCI benchmark over the next 12 months Page 12 of 13

13 UNDERWEIGHT: Industry, as defined by the analyst s coverage universe is expected to under-perform the KLCI benchmark over the next 12 months Conflict of Interest Disclosure Ownership of Securities For Ownership of Securities information, please visit BlueMatrix disclosure Link at Investment Banking Relationships For Investment Banking Relationship, please visit BlueMatrix disclosure Link at Relevant Relationships Affin Hwang may from time to time have an individual employed by or associated with it serves as an officer of any of the companies under its research coverage. Affin Hwang market making Affin Hwang may from time to time make a market in securities covered by this research. Additional information may be available upon request. Japan - additional notification items pursuant to Article 37 of the Financial Instruments and Exchange Law (This Notification is only applicable where report is distributed by Daiwa Securities Co. Ltd.) If you decide to enter into a business arrangement with us based on the information described in materials presented along with this document, we ask you to pay close attention to the following items. In addition to the purchase price of a financial instrument, we will collect a trading commission* for each transaction as agreed beforehand with you. Since commissions may be included in the purchase price or may not be charged for certain transactions, we recommend that you confirm the commission for each transaction. In some cases, we may also charge a maximum of 2 million (including tax) per year as a standing proxy fee for our deposit of your securities, if you are a nonresident of Japan. For derivative and margin transactions etc., we may require collateral or margin requirements in accordance with an agreement made beforehand with you. Ordinarily in such cases, the amount of the transaction will be in excess of the required collateral or margin requirements. There is a risk that you will incur losses on your transactions due to changes in the market price of financial instruments based on fluctuations in interest rates, exchange rates, stock prices, real estate prices, commodity prices, and others. In addition, depending on the content of the transaction, the loss could exceed the amount of the collateral or margin requirements. There may be a difference between bid price etc. and ask price etc. of OTC derivatives handled by us. Before engaging in any trading, please thoroughly confirm accounting and tax treatments regarding your trading in financial instruments with such experts as certified public accountants. *The amount of the trading commission cannot be stated here in advance because it will be determined between our company and you based on current market conditions and the content of each transaction etc. When making an actual transaction, please be sure to carefully read the materials presented to you prior to the execution of agreement, and to take responsibility for your own decisions regarding the signing of the agreement with us. Corporate Name: Daiwa Securities Co. Ltd. Financial instruments firm: chief of Kanto Local Finance Bureau (Kin-sho) No.108 Memberships: Japan Securities Dealers Association, The Financial Futures Association of Japan Japan Investment Advisers Association Type II Financial Instruments Firms Association Page 13 of 13