Malaysia Industry Focus Malaysia Gaming Refer to important disclosures at the end of this report DBS Group Research. Equity 11 Feb 2015 No fun, no tricks, no hypes Prospects to remain sluggish, dragged by weak consumer sentiment and GST implementation No significant developments on external front No visible re-rating rating catalysts KLCI :1,811.12 Analyst King Yoong CHEAH CFA +603 2604 3908 cheahky@alliancedbs.com No excitement. We remain convinced there is little scope for Malaysian gaming stocks to re-rate in the near term. The Consumer Sentiment Index for 4Q2014 fell 15 points q-o-q to the year s low of 83. The extended weak domestic consumer sentiment could further reduce discretionary spending, which could in turn, have a negative impact on Genting Malaysia s domestic leisure & hospitality operations and NFO ticket sales. External kickers still elusive. On the external front, there are no significant developments that could boost buying interest in domestic gaming players. Although, Genting Bhd might appeal to investors if Japan liberalises its gaming sector, as its subsidiary, Genting Singapore, is well positioned to bid for a casino licence there, there is still no committed timeline to pass the bill to legalise casinos in Japan. GST will be a drag. We believe both Genting Group and number forecasting operators (NFOs) would have to fully absorb the GST without a corresponding reduction in gaming tax. Although the GST impact on gaming operators will not be as severe as previously feared, because the GST computation would take into account prize payouts (see Figure 2), it could still drag forward earnings of gaming players. Indeed, the imminent implementation of GST has started to dampen alreadyfragile consumer sentiment. Adjusting earnings estimates, a boring game. We have revised forecast earnings and recommendations of gaming companies under our coverage, mainly to capture the impact of GST. These are reflected in the individual company reports. The sector will remain unexciting in the near term STOCKS Genting Berhad : Conglomerate with core businesses in leisure & hospitality and plantation as well as power and oil & gas. Genting Malaysia : Monopoly of Malaysian casino. Magnum Bhd : Market leader in NFO Berjaya Sports Toto : Principal activities include licensed toto betting, leasing of online lottery equipment and manufacture and distribution of computerised lottery equipment Tables or Charts Source: AllianceDBS Price RM Mkt Cap Target Price Performance (%) US$m RM 3 mth 12 mth Rating Genting Berhad 8.72 9,116 8.76 (6.2) (13.3) HOLD Genting Malaysia 4.08 6,505 4.10 (2.2) (4.0) HOLD Magnum Bhd 2.81 1,126 2.45 (6.6) (7.6) HOLD Berjaya Sports Toto 3.43 1,297 3.36 (3.4) (12.3) HOLD www.dbsvickers.com ed-sgc / sa- WMT
Industry Focus Malaysia Gaming Figure 1: MIER consumer sentiment index Figure 2: GST Taxation structure for gaming operators 125 Malaysia Consumer Sentiments Index 115 105 95 85 75 1Q09 2Q09 3Q09 4Q09 1Q10 2Q10 3Q10 4Q10 1Q11 2Q11 3Q11 4Q11 1Q12 2Q12 3Q12 4Q12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 Source: MIER where A B is the total amount received for the supply less any tax or duty under any other written law except excise duty; is the amount of money, if any, payable to any person participating successfully in the bettings, sweepstakes, lotteries, gaming machines or games of chance; and C is the rate of tax fixed under section 10 Source: Laws of Malaysia, Act 762 Page 2
Malaysia Company Focus Berjaya Sports Toto Bloomberg: BST MK Reuters: BSTB.KL Refer to important disclosures at the end of this report DBS Group Research. Equity 11 Feb 2015 HOLD RM3.43 3.43 KLCI : 1,811.12 Price Target : 12- month RM 3.36 (Prev RM 3.70) Reason for Report : GST implications Potential Catalyst: New game variants AllianceDBS vs Consensus: Below consensus Analyst King Yoong CHEAH CFA +603 2604 3908 cheahky@alliancedbs.com Price Relative 4.8 4.6 4.4 4.2 4.0 3.8 3.6 3.4 3.2 3.0 RM Relative Index 2.8 61 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Berjaya Sports Toto (LHS) Relative KLCI INDEX (RHS) Forecasts and Valuation FY Apr (RM m) 2014A 2015F 2016F 2017F Revenue 4,341 5,075 5,040 5,074 EBITDA 575 565 560 565 Pre-tax Profit 510 501 506 521 Net Profit 329 360 363 374 Net Pft (Pre Ex.) 364 360 363 374 EPS (sen) 24.6 26.9 27.1 27.9 EPS Pre Ex. (sen) 27.2 26.9 27.1 27.9 EPS Gth (%) (16) 9 1 3 EPS Gth Pre Ex (%) (2) (1) 1 3 Diluted EPS (sen) 27.2 26.9 27.1 27.9 Net DPS (sen) 26.5 20.0 20.1 20.7 BV Per Share (sen) 46.5 53.5 60.4 67.6 PE (X) 14.0 12.8 12.7 12.3 PE Pre Ex. (X) 12.6 12.8 12.7 12.3 P/Cash Flow (X) 11.9 10.2 10.4 10.3 EV/EBITDA (X) 8.5 8.5 8.4 8.1 Net Div Yield (%) 7.7 5.8 5.9 6.0 P/Book Value (X) 7.4 6.4 5.7 5.1 Net Debt/Equity (X) 0.3 0.2 CASH CASH ROAE (%) 55.1 53.8 47.6 43.6 Earnings Rev (%): (4) (8) nm Consensus EPS (sen sen): 27.5 27.8 27.6 Other Broker Recs: B: 7 S: 0 H: 8 ICB Industry : Consumer Services ICB Sector: Travel & Leisure Principal Business: Principal activities include licensed toto betting, leasing of online lottery equipment and manufacture and distribution of computerised lottery equipment Source of all data: Company, AllianceDBS, Bloomberg Finance L.P. 221 201 181 161 141 121 101 81 Lacks gaming excitement Cut FY15-17F earnings by 3%-9% after reflecting weaker consumer sentiment and GST Risk of PGMC not renewing contract; this could reduce annual earnings further by RM50m Maintain HOLD, trimmed TP to RM3.36 GST to drag earnings. The GST will have less severe impact on domestic NFOs than previously feared, given that the GST computation would take into account prize payouts, it would still drag forward earnings. The imminent implementation of GST could further weaken already-fragile consumer sentiment. Downside risk from the Philippines. Revenue from the leasing of lottery equipment by its subsidiary, Philippine Gaming Management Corporation (PGMC; 88% stake) accounted for about 15% of FY14 group earnings. There is risk of non-renewal of the contract which is expiring in Aug 2015, which could reduce annual earnings by about RM50m. Cut earnings. We cut FY15F/16F/17F earnings by 3%/8%/9% after accounting for the following: (1) a 1% drop (previously 2% growth) in FY16F gaming revenue as a result of weak consumer sentiment, with a recovery in subsequent years, and (2) NFOs will fully absorb the GST. Trimmed TP, maintain HOLD. Following the earnings downgrade, we trimmed TP to RM3.36, based on the dividend discount model and assuming (i) 75% dividend payout ratio, (ii) 7.3% cost of equity, and (iii) 1% terminal growth rate. Dividend yield of over 5% should continue to support the share price. At A Glance Issued Capital (m shrs) 1,344 Mkt. Cap (RMm/US$m) 4,611 / 1,297 Major Shareholders Vincent Tan CY (%) 49.2 Great Eastern Life (%) 3.0 (%) 0.0 Free Float (%) 47.8 Avg. Daily Vol.( 000) 1,008 www.dbsvickers.com ed: SGC / sa: WMT
Berjaya Sports Toto INVESTMENT THESIS Profile BST is the largest number forecast operator (NFO) by market share, number of outlets and games. Rationale Earnings uncertainties with the implementation of GST GST will hurt margins from 2015. Weak consumer sentiment will continue to drag earnings Subdued investor interest on dividend-yielding assets Investor interest on dividend-yielding assets will be dampened by the ongoing US QE tapering and potential interest rate hike by Bank Negara Malaysia in the coming months. Valuation Following the earnings downgrade, we trimmed TP to RM3.36, based on the dividend discount model and assuming (i) 75% dividend payout ratio, (ii) 7.3% cost of equity, and (iii) 1% terminal growth rate. Dividend yield of over 5% should continue to support the share price. Risks Declining gross revenue/draw Rising competition from illegal NFOs (mainly 4D), but promotion of lotto games should help boostsales.consumer spending to moderate. Slower economic growth and rising inflationary pressures. While NFO sales may be affected, impact will be partiallycushioned by its small ticket-item nature and resilient historical track record. Malaysian gaming tax hike, impact of GST Domestic gaming operators remain vulnerable to potential gaming tax hike at the upcoming budget. GST from 2015 willhurt margins. Source: AllianceDBS Page 4
Berjaya Sports Toto Income Statement (RM m) FY Apr 2013A 2014A 2015F 2016F 2017F Revenue 3,628 4,341 5,075 5,040 5,074 Cost of Goods Sold (3,049) (3,750) (4,509) (4,480) (4,509) Gross Profit 579 591 565 560 565 Other Opng (Exp)/Inc (27) (45) (33) (33) (32) Operating Profit 552 546 532 527 534 Other Non Opg (Exp)/Inc 21 29 0 0 0 Associates & JV Inc (3) (1) (1) (1) (1) Net Interest (Exp)/Inc (18) (29) (30) (21) (12) Exceptional Gain/(Loss) 19 (35) 0 0 0 Pre-tax Profit 570 510 501 506 521 Tax (166) (166) (125) (126) (130) Minority Interest (12) (15) (16) (17) (17) Preference Dividend 0 0 0 0 0 Net Profit 391 329 360 363 374 Net Profit before Except. 372 364 360 363 374 EBITDA 579 575 565 560 565 Growth Revenue Gth (%) 0.6 19.6 16.9 (0.7) 0.7 EBITDA Gth (%) (6.2) (0.6) (1.7) (1.0) 1.0 Opg Profit Gth (%) (6.5) (1.0) (2.5) (0.9) 1.2 Net Profit Gth (%) (3.5) (16.0) 9.4 0.8 3.0 Margins & Ratio Gross Margins (%) 16.0 13.6 11.1 11.1 11.1 Opg Profit Margin (%) 15.2 12.6 10.5 10.5 10.5 Net Profit Margin (%) 10.8 7.6 7.1 7.2 7.4 ROAE (%) 74.5 55.1 53.8 47.6 43.6 ROA (%) 26.3 17.8 16.7 16.9 17.2 ROCE (%) 35.0 28.2 28.0 28.6 29.2 Div Payout Ratio (%) 95.8 107.8 74.2 74.2 74.2 Net Interest Cover (x) 30.2 18.5 17.6 24.9 44.2 Margins Trend 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% 6.0% Gaming revenue to contract in FY16 due to weaker consumer sentiment 2013A 2014A 2015F 2016F 2017F Operating Margin % Net Income Margin % Page 5
Berjaya Sports Toto Quarterly / Interim Income Statement (RM m) FY Apr 2Q2014 2014 3Q2014 4Q2014 1Q2015 2Q2015 2015 Revenue Trend 1,600 1,400 50% 40% Revenue 867 1,228 1,359 1,244 1,254 Cost of Goods Sold (722) (1,077) (1,245) (1,110) (1,107) Gross Profit 145 151 114 134 147 Other Oper. (Exp)/Inc (6) (9) (8) (8) 0 Operating Profit 139 142 105 126 147 Other Non Opg (Exp)/Inc 15 2 4 1 0 Associates & JV Inc 0 0 0 1 2 Net Interest (Exp)/Inc (7) (9) (9) (7) (5) Exceptional Gain/(Loss) (19) (10) (1) 0 0 Pre-tax Profit 128 124 100 121 143 Tax (40) (49) (26) (39) (43) Minority Interest (5) (2) (4) (3) (1) Net Profit 83 73 69 78 100 Net profit bef Except. 102 83 71 78 100 EBITDA 145 151 114 134 155 1,200 1,000 800 600 400 200 0 1Q2013 2Q2013 3Q2013 Revenue 4Q2013 1Q2014 2Q2014 3Q2014 4Q2014 1Q2015 Revenue Growth % (QoQ) 2Q2015 30% 20% 10% 0% -10% -20% Growth Revenue Gth (%) (2.3) 41.7 10.7 (8.5) 0.8 EBITDA Gth (%) (9.3) 4.1 (24.5) 17.9 15.6 Opg Profit Gth (%) (9.2) 2.4 (25.8) 19.8 16.6 Net Profit Gth (%) (16.4) (11.5) (5.2) 13.0 27.3 Margins Gross Margins (%) 16.7 12.3 8.4 10.8 11.8 Opg Profit Margins (%) 16.0 11.6 7.8 10.2 11.7 Net Profit Margins (%) 9.5 6.0 5.1 6.3 7.9 Balance Sheet (RM m) FY Apr 2013A 2014A 2015F 2016F 2017F Asset Breakdown (2015) Net Fixed Assets 122 165 161 158 155 Invts in Associates & JVs 8 11 11 11 11 Other LT Assets 821 952 952 952 952 Cash & ST Invts 433 490 462 434 460 Inventory 17 268 281 295 310 Debtors 142 261 274 288 303 Other Current Assets 0 3 3 3 3 Total Assets 1,543 2,150 2,145 2,142 2,194 ST Debt 150 334 150 130 0 Creditor 348 693 727 764 802 Other Current Liab 28 13 13 13 13 LT Debt 400 400 434 304 304 Other LT Liabilities 4 10 10 11 42 Shareholder s Equity 570 622 715 808 904 Minority Interests 43 79 96 112 129 Total Cap. & Liab. 1,543 2,150 2,145 2,142 2,194 Non-Cash Wkg. Capital (217) (174) (182) (190) (199) Net Cash/(Debt) (117) (244) (122) 1 156 Debtors Turn (avg days) 10.9 17.0 19.3 20.4 21.2 Creditors Turn (avg days) 41.4 51.1 57.9 61.2 63.8 Inventory Turn (avg days) 1.9 14.0 22.4 23.7 24.7 Asset Turnover (x) 2.4 2.4 2.4 2.4 2.3 Current Ratio (x) 1.1 1.0 1.1 1.1 1.3 Quick Ratio (x) 1.1 0.7 0.8 0.8 0.9 Net Debt/Equity (X) 0.2 0.3 0.2 CASH CASH Net Debt/Equity ex MI (X) 0.2 0.4 0.2 CASH CASH Capex to Debt (%) (1.0) 0.6 5.0 6.7 9.6 Z-Score (X) 7.0 5.1 5.9 6.2 0.0 Page 6
Berjaya Sports Toto Cash Flow Statement (RM m) FY Apr 2013A 2014A 2015F 2016F 2017F Pre-Tax Profit 570 510 501 506 521 Dep. & Amort. 27 29 33 33 32 Tax Paid (166) (166) (125) (126) (130) Assoc. & JV Inc/(loss) 3 1 1 1 1 Chg in Wkg.Cap. (59) (26) 8 9 9 Other Operating CF 33 36 30 21 12 Net Operating CF 408 384 448 442 444 Capital Exp.(net) 5 (5) (29) (29) (29) Other Invts.(net) 0 0 0 0 0 Invts in Assoc. & JV (40) (154) 0 0 0 Div from Assoc & JV 0 0 0 0 0 Other Investing CF (23) (20) 13 12 12 Net Investing CF (58) (179) (16) (17) (17) Div Paid (260) (189) (267) (269) (277) Chg in Gross Debt 0 184 (150) (150) (100) Capital Issues (40) (104) 0 0 0 Other Financing CF (32) (42) (43) (33) (24) Net Financing CF (332) (152) (460) (452) (401) Currency Adjustments 2 6 0 0 0 Chg in Cash 21 60 (28) (27) 26 Opg CFPS (sen) 34.9 30.7 32.9 32.4 32.5 Free CFPS (sen) 30.9 28.4 31.3 30.9 31.0 Capital Expenditure 35 30 25 20 15 10 5 0 2013A 2014A 2015F 2016F 2017F Capital Expenditure (-) Target Price & Ratings History 4.10 4.00 3.90 3.80 3.70 3.60 RM 1 2 3 4 S.No. Da te Closing Ta rge t Price Pric e Ra ting 1: 18 Mar 14 3.79 4.25 Buy 2: 18 Jun 14 3.84 4.10 Hold 3: 22 Sep 14 3.74 4.05 Hold 4: 19 Dec 14 3.53 3.70 Hold 3.50 3.40 3.30 3.20 Feb-14 Jun-14 Oct-14 Feb-15 Note : Share price and Target price are adjusted for corporate actions. Page 7
Malaysia Company Focus Genting Berhad Bloomberg: GENT MK EQUITY Reuters: GENT.KL Refer to important disclosures at the end of this report DBS Group Research. Equity 11 Feb 2015 HOLD RM8.72 8.72 KLCI : 1,811.12 Price Target : 12-Month RM 8.76 (Prev RM 8.90) Reason for Report : GST implications Potential Catalyst: Gaming liberalisation in Japan AllianceDBS vs Consensus: In line with consensus Analyst King Yoong CHEAH CFA +603 2604 3908 cheahky@alliancedbs.com Price Relative 12.5 11.5 10.5 9.5 8.5 RM 7.5 63 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Genting Berhad (LHS) Relative KLCI INDEX (RHS) Relative Index Forecasts and Valuation FY Dec (RM m) 2013F 2014F 2015F 2016F Revenue 17,112 17,737 19,466 21,126 EBITDA 5,977 6,528 6,892 7,397 Pre-tax Profit 4,452 4,566 4,775 5,221 Net Profit 1,810 1,642 1,633 1,766 Net Pft (Pre Ex.) 1,458 1,642 1,633 1,766 EPS (sen) 48.9 44.3 44.1 47.7 EPS Pre Ex. (sen) 39.3 44.3 44.1 47.7 EPS Gth (%) (55) (9) (1) 8 EPS Gth Pre Ex (%) (31) 13 (1) 8 Diluted EPS (sen) 48.9 44.3 44.1 47.7 Net DPS (sen) 37.5 6.0 6.0 6.0 BV Per Share (sen) 683.2 721.5 759.6 801.2 PE (X) 17.9 19.7 19.8 18.3 PE Pre Ex. (X) 22.2 19.7 19.8 18.3 P/Cash Flow (X) 6.9 6.6 6.4 5.9 EV/EBITDA (X) 7.9 7.3 6.8 5.8 Net Div Yield (%) 4.3 0.7 0.7 0.7 P/Book Value (X) 1.3 1.2 1.1 1.1 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 7.7 6.3 5.9 6.1 Earnings Rev (%): (10) (15) (16) Consensus EPS (sen sen): 46.7 54.2 60.6 Other Broker Recs: B: 8 S: 2 H: 13 203 183 163 143 123 103 83 Patiently awaiting catalysts Cut earnings after including GST impact No visible near-term catalyst Maintain HOLD, trimmed TP to RM8.76 Cut earnings. We cut FY15F/16F earnings for Genting Bhd by 4%/6%, after reducing earnings for subsidiary, Genting Malaysia to account for the GST impact. No visible near-term re-rating catalyst. However, Genting Bhd might appeal to investors if Japan liberalizes its gaming sector, since its subsidiary Genting Singapore is well-positioned to bid for a casino licence there. Nevertheless, there is no committed timeline to pass the bill to legalise casino operations there. GITP a longer-term catalyst. The group is progressing with the Genting Integrated Tourism Plan (GITP). The group is expected to launch (1) 1,300 new hotel rooms by mid-2015, (2) Sky Avenue & Sky Plaza shopping malls, and new cable car station by 2016, and (3) Twentieth Century Fox World theme park by end 2016. We understand the group has obtained regulatory approvals to set up a new casino at Sky Plaza, although management disclosed minimal information on the additional gaming capacity obtained. Maintain HOLD. Following the earnings downgrade, we trimmed TP to RM8.76, based on SOP valuation. At A Glance Issued Capital (m shrs) 3,718 Mkt. Cap (RMm/US$m) 32,421 / 9,116 Major Shareholders Tan Sri Lim Goh Tong & Family 55.0 Great Eastern Life (%) 1.0 (%) 0.0 Free Float (%) 44.0 Avg. Daily Vol.( 000) 2,455 ICB Industry : Consumer Services ICB Sector: Travel & Leisure Principal Business: Conglomerate with core businesses in leisure & hospitality and plantation as well as power and oil & gas. Source of all data: Company, AllianceDBS, Bloomberg Finance L.P. www.dbsvickers.com ed: SGC / sa: WMT
Genting Berhad INVESTMENT THESIS Profile GENT is a conglomerate with stakes in listed subsidiaries i.e. GENM (49%), GENS (52%), GENP (55%), and Landmarks (30%). GENT also has exposure to power (China, India), oil & gas (Indonesia) and property segments. Rationale Resilient diversified earnings Gaming contributed 89% of 2014F EBIT, plantation 6%, power 4%, and propert y 1%. The share of local and overseas contribution is similar. Long-term growth drivers This would be driven by the new Jawa power plant and Resorts World Las Vegas which will be completed in 2016. Potential US$2.2b proceeds from the exercise of warrants (currently in-the-money) will come in handy. Valuation Following the earnings downgrade, we trimmed TP to RM8.76, based on SOP valuation. There is no visible re-rating catalyst for the stock in the near term. Risks Facing similar risks as listed subsidiaries; other risks include: Higher operating risk in Las Vegas, given intense competition in a nascent market, absence of first-mover advantage, and less strategic location. Nevertheless, Genting can leverage on its large Asian VIP clientele and experience with Foxwood casino. High coal prices could dampen power contribution as tariff hikes are negotiated on ad hoc basis. Source: AllianceDBS Page 9
Genting Berhad Segmental Breakdown FY Dec 2012F 2013F 2014F 2015F 2016F Revenues (RM m) Leisure 15,030 15,375 15,876 17,513 18,894 Plantations 1,082 1,080 1,439 1,513 1,775 Power 63 252 0 0 0 Property 221 331 348 365 383 Others 67 74 74 74 74 Total 16,462 17,112 17,737 19,466 21,126 (RM m) Leisure 6,316 5,821 6,132 6,511 6,951 Plantations 410 342 378 388 491 Power 51 36 0 0 0 Property 83 81 131 138 144 Others (120) (302) (113) (145) (189) Total 6,739 5,977 6,528 6,892 7,397 Margins (%) Leisure 42.0 37.9 38.6 37.2 36.8 Plantations 37.9 31.7 26.3 25.6 27.7 Power 81.0 14.2 N/A N/A N/A Property 37.7 24.5 37.7 37.7 37.7 Others N/A N/A N/A N/A N/A Total 40.9 34.9 36.8 35.4 35.0 Income Statement (RM m) FY Dec 2012F 2013F 2014F 2015F 2016F Revenue 16,462 17,112 17,737 19,466 21,126 Cost of Goods Sold (10,253) (11,627) (11,680) (13,047) (14,207) Gross Profit 6,209 5,484 6,057 6,418 6,919 Other Opng (Exp)/Inc (1,540) (1,693) (1,713) (1,825) (1,858) Operating Profit 4,668 3,791 4,345 4,593 5,061 Other Non Opg (Exp)/Inc 0 0 0 0 0 Associates & JV Inc 36 67 70 74 78 Net Interest (Exp)/Inc (166) (184) (249) (292) (318) Exceptional Gain/(Loss) 1,877 352 0 0 0 Pre-tax Profit 6,910 4,452 4,566 4,775 5,221 Tax (1,123) (747) (1,268) (1,306) (1,408) Minority Interest (1,571) (1,589) (1,350) (1,530) (1,742) Preference Dividend (232) (306) (306) (306) (306) Net Profit 3,983 1,810 1,642 1,633 1,766 Net Profit before Except. 2,107 1,458 1,642 1,633 1,766 EBITDA 6,739 5,977 6,528 6,892 7,397 Growth Revenue Gth (%) (11.4) 3.9 3.7 9.7 8.5 EBITDA Gth (%) (10.6) (11.3) 9.2 5.6 7.3 Opg Profit Gth (%) (20.2) (18.8) 14.6 5.7 10.2 Net Profit Gth (%) 38.9 (54.6) (9.3) (0.6) 8.2 Margins & Ratio Gross Margins (%) 37.7 32.0 34.2 33.0 32.8 Opg Profit Margin (%) 28.4 22.2 24.5 23.6 24.0 Net Profit Margin (%) 24.2 10.6 9.3 8.4 8.4 ROAE (%) 20.3 7.7 6.3 5.9 6.1 ROA (%) 6.6 2.6 2.3 2.2 2.3 ROCE (%) 7.1 5.0 4.8 5.0 5.3 Div Payout Ratio (%) 5.6 76.8 13.5 13.6 12.6 Net Interest Cover (x) 28.2 20.6 17.4 15.7 15.9 Margins Trend 27.0% 22.0% 17.0% 12.0% 7.0% 2012F 2013F 2014F 2015F 2016F Operating Margin % Net Income Margin % Page 10
Genting Berhad Quarterly / Interim Income Statement (RM m) FY Dec 3Q2013 4Q2013 1Q2014 2Q2014 2014 3Q2014 Revenue 4,478 4,404 4,693 4,409 4,492 Cost of Goods Sold (3,019) (3,178) (2,876) (3,051) (3,005) Gross Profit 1,459 1,226 1,817 1,358 1,487 Other Oper. (Exp)/Inc (420) (295) (449) (449) (445) Operating Profit 1,039 931 1,368 909 1,042 Other Non Opg (Exp)/Inc 0 0 0 0 0 Associates & JV Inc 73 4 26 9 4 Net Interest (Exp)/Inc (57) (39) (33) (16) (13) Exceptional Gain/(Loss) 46 114 (37) (11) (136) Pre-tax Profit 1,114 1,155 1,431 956 955 Tax (202) (151) (355) (234) (275) Minority Interest (374) (438) (502) (274) (253) Net Profit 462 484 498 372 353 Net profit bef Except. 416 370 535 383 489 EBITDA 1,546 1,375 1,951 1,431 1,550 Revenue Trend 4,800 4,600 4,400 4,200 4,000 3,800 3,600 3,400 2Q2012 3Q2012 4Q2012 1Q2013 Revenue 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 Revenue Growth % (QoQ) 3Q2014 12% 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% Growth Revenue Gth (%) 3.8 (1.7) 6.6 (6.1) 1.9 EBITDA Gth (%) (6.4) (11.0) 41.8 (26.6) 8.3 Opg Profit Gth (%) (5.6) (10.4) 46.8 (33.5) 14.6 Net Profit Gth (%) (0.9) 4.7 2.8 (25.2) (5.2) Margins Gross Margins (%) 32.6 27.8 38.7 30.8 33.1 Opg Profit Margins (%) 23.2 21.1 29.1 20.6 23.2 Net Profit Margins (%) 10.3 11.0 10.6 8.4 7.9 Balance Sheet (RM m) FY Dec 2012F 2013F 2014F 2015F 2016F Asset Breakdown (2014) Net Fixed Assets 22,404 24,809 26,208 27,473 25,615 Invts in Associates & JVs 794 1,050 1,120 1,194 1,272 Other LT Assets 13,514 15,283 15,283 15,283 15,283 Cash & ST Invts 24,855 23,840 22,902 23,776 29,416 Inventory 477 385 433 483 526 Debtors 3,408 3,993 3,836 4,209 4,568 Other Current Assets 164 2,136 2,139 2,142 2,145 Total Assets 65,615 71,495 71,919 74,561 78,825 ST Debt 1,892 2,561 2,561 2,561 2,561 Creditor 3,782 4,099 4,084 4,482 4,865 Other Current Liab 696 1,621 1,621 1,621 1,621 LT Debt 12,701 10,824 8,825 7,576 7,576 Other LT Liabilities 2,076 1,818 1,486 2,037 2,634 Shareholder s Equity 21,700 25,314 26,734 28,144 29,688 Minority Interests 22,769 25,259 26,608 28,139 29,880 Total Cap. & Liab. 65,615 71,495 71,919 74,561 78,825 Non-Cash Wkg. Capital (429) 795 702 732 754 Net Cash/(Debt) 10,262 10,455 11,515 13,639 19,278 Debtors Turn (avg days) 68.9 78.9 80.6 75.4 75.8 Creditors Turn (avg days) 170.9 144.8 149.8 139.3 138.1 Inventory Turn (avg days) 21.3 15.8 15.0 14.9 14.9 Asset Turnover (x) 0.3 0.2 0.2 0.3 0.3 Current Ratio (x) 4.5 3.7 3.5 3.5 4.1 Quick Ratio (x) 4.4 3.4 3.2 3.2 3.8 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) (12.7) 11.0 27.3 30.5 0.0 Z-Score (X) 2.2 2.1 2.2 2.3 2.3 Page 11
Genting Berhad Cash Flow Statement (RM m) FY Dec 2012F 2013F 2014F 2015F 2016F Pre-Tax Profit 6,910 4,452 4,566 4,775 5,221 Dep. & Amort. 1,540 1,693 1,713 1,825 1,858 Tax Paid (1,038) (1,302) (1,268) (1,306) (1,408) Assoc. & JV Inc/(loss) (36) (67) (70) (74) (78) Chg in Wkg.Cap. (1,291) (741) 93 (29) (23) Other Operating CF (780) 633 (151) (108) (82) Net Operating CF 5,305 4,668 4,882 5,083 5,489 Capital Exp.(net) 1,846 (1,466) (3,112) (3,090) 0 Other Invts.(net) 0 0 0 0 0 Invts in Assoc. & JV (5,131) (5,076) 0 0 0 Div from Assoc & JV 239 251 246 246 291 Other Investing CF 224 265 151 108 82 Net Investing CF (2,822) (6,025) (2,715) (2,737) 373 Div Paid (222) (1,510) (222) (222) (222) Chg in Gross Debt 5,968 (864) (1,999) (1,249) 0 Capital Issues 0 1,237 0 0 0 Other Financing CF 1,569 1,481 (885) 0 0 Net Financing CF 7,316 343 (3,106) (1,471) (222) Currency Adjustments 0 0 0 0 0 Chg in Cash 9,798 (1,015) (939) 875 5,639 Opg CFPS (sen) 178.0 146.0 129.3 138.0 148.7 Free CFPS (sen) 193.0 86.4 47.8 53.8 148.1 Capital Expenditure 3500 3000 2500 2000 1500 1000 500 0 2012F 2013F 2014F 2015F 2016F Capital Expenditure (-) Target Price & Ratings History 10.88 10.38 9.88 9.38 RM 1 2 3 S.No. Da te Closing Ta rge t Price Pric e Ra ting 1: 30 May 14 9.73 10.60 Hold 2: 29 Aug 14 9.58 10.40 Hold 3: 24 Nov 14 9.50 8.90 Hold 8.88 8.38 7.88 Feb-14 Jun-14 Oct-14 Feb-15 Note : Share price and Target price are adjusted for corporate actions. Page 12
Malaysia Company Focus Genting Malaysia Bloomberg: GENM MK Reuters: GENM.KL Refer to important disclosures at the end of this report DBS Group Research. Equity 11 Feb 2015 HOLD RM4.08 4.08 KLCI : 1,811.12 Price Target : 12-month RM 4.10 (Prev RM 4.35) Reason for Report : GST implications Potential Catalyst: Earlier than expected completion of GITP AllianceDBS vs Consensus: Below consensus Analyst King Yoong CHEAH CFA +603 2604 3908 cheahky@alliancedbs.com Price Relative 4.9 4.4 3.9 3.4 RM 2.9 81 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Genting Malaysia (LHS) Relative KLCI INDEX (RHS) Forecasts and Valuation FY Dec (RM m) 2013F 2014F 2015F 2016F Revenue 8,328 8,292 9,552 10,613 EBITDA 2,378 2,157 2,266 2,537 Pre-tax Profit 1,766 1,559 1,597 1,864 Net Profit 1,603 1,276 1,338 1,554 Net Pft (Pre Ex.) 1,678 1,276 1,338 1,554 EPS (sen) 27.1 21.6 22.7 26.3 EPS Pre Ex. (sen) 28.4 21.6 22.7 26.3 EPS Gth (%) 14 (20) 5 16 EPS Gth Pre Ex (%) 2 (24) 5 16 Diluted EPS (sen) 27.1 21.6 22.7 26.3 Net DPS (sen) 6.2 4.6 4.9 5.7 BV Per Share (sen) 261.8 276.7 292.6 312.2 PE (X) 15.0 18.9 18.0 15.5 PE Pre Ex. (X) 14.4 18.9 18.0 15.5 P/Cash Flow (X) 11.5 13.1 11.2 10.5 EV/EBITDA (X) 8.8 10.5 9.7 8.4 Net Div Yield (%) 1.5 1.1 1.2 1.4 P/Book Value (X) 1.6 1.5 1.4 1.3 Net Debt/Equity (X) CASH CASH CASH CASH ROAE (%) 10.4 7.8 7.7 8.4 Earnings Rev (%): 0 (8) (10) Consensus EPS (sen sen): 22.8 25.5 29.1 Other Broker Recs: B: 9 S: 1 H: 15 ICB Industry : Consumer Services ICB Sector: Travel & Leisure Principal Business: Monopoly of Malaysian casino. Relative Index 221 201 181 161 141 121 101 No near term catalyst 4Q14 results expected to be dampened by oneoff provision charge Successful execution of GITP a long term catalyst Cut FY15-16F earnings by 8%-11% HOLD, trimmed TP to RM4.10 One off provision charge in 4Q. The group expects to book a large provision in 4Q for its failed bid for a New York Upstate casino licence. But the charge is oneoff and therefore, will not affect core earnings. GITP to be a longer term catalyst. The group is progressing with the Genting Integrated Tourism Plan (GITP). The group is expected to launch (1) 1,300 new hotel rooms by mid-2015, (2) Sky Avenue & Sky Plaza shopping malls, and new cable car station by 2016, and (3) Twentieth Century Fox World theme park by end 2016. We understand the group has obtained regulatory approvals to set up a new casino at Sky Plaza, although management disclosed minimal information on the additional gaming capacity obtained. But unexciting in the near term, cut earnings. Despite improving prospects with the successful execution of GITP, the group s near term earnings will be dragged by GST and weaker consumer sentiment. We cut FY15F/16F earnings by 8%/11% after accounting for the GST impact. Maintain HOLD. Following the earnings downgrade, we trimmed TP to RM4.10, based on SOP valuation. There is no visible re-rating catalyst for the stock in the near term. At A Glance Issued Capital (m shrs) 5,670 Mkt. Cap (RMm/US$m) 23,135 / 6,505 Major Shareholders Genting Berhad (%) 50.0 Great Eastern Life (%) 3.0 (%) 0.0 Free Float (%) 47.0 Avg. Daily Vol.( 000) 3,856 Source of all data: Company, AllianceDBS, Bloomberg Finance L.P. www.dbsvickers.com ed: SGC / sa: WMT
Genting Malaysia INVESTMENT THESIS Profile GENM has the casino monopoly in Malaysia. GENM also owns Genting UK (GENUK), one of the largest casino operators in UK, and US racino Resorts World in New York (RWNY). Rationale Lacks near term re-rating rating catalysts There are no near term catalysts, given that (i) GITP is a longer term growth story, (ii) Miami is unlikely to liberalise its gaming industry this year. Earnings uncertainties with the implementation of GST GST (effective April 2015) will hurt profit margins of domestic operations. Valuation We have a Hold call on GENM with a target price of RM4.10 based on SOP valuation. Ther eis no visible re-rating catalyst for the stock in the near term. Risks Declining revenue on weakening consumer sentiment Larger-than-expected weakness in consumer sentiment could impact domestic gaming operations. Malaysian gaming tax hike, impact of GST Gaming was spared in the recent budget, but domestic gaming players remain vulnerable to such tax hikes in the upcoming budget. GST will hurt margins from 2015. Negative surprises from overseas venture To sustain earnings growth going forward, GENM has been actively expanding its gaming operations to the UK and US. As such, the group's overall financial performance is increasingly exposed to risks in these countries. Source: AllianceDBS Page 14
Genting Malaysia Segmental Breakdown FY Dec 2012A 2013F 2014F 2015F 2016F Revenues (RM m) Leisure - Msia 7,758 8,217 8,182 9,442 10,502 Properties 75 66 66 66 66 Others 60 45 45 45 45 N/A N/A N/A N/A N/A Others N/A N/A N/A N/A N/A Total 7,893 8,328 8,292 9,552 10,613 Operating Profit (RM m) Leisure - Msia 2,411 2,390 2,104 2,213 2,484 Properties 50 3 3 3 3 Others 87 (15) 50 50 50 Total 2,548 2,378 2,157 2,266 2,537 Operating Profit Margins Leisure - Msia 31.1 29.1 25.7 23.4 23.6 Properties 67.2 4.6 4.6 4.6 4.6 Others 143.8 (33.0) 111.7 111.7 111.7 Total 32.3 28.6 26.0 23.7 23.9 Income Statement (RM m) FY Dec 2012A 2013F 2014F 2015F 2016F Revenue 7,893 8,328 8,292 9,552 10,613 Cost of Goods Sold (5,377) (5,953) (6,185) (7,336) (8,126) Gross Profit 2,515 2,374 2,107 2,216 2,487 Other Opng (Exp)/Inc (517) (552) (589) (649) (667) Operating Profit 1,999 1,822 1,518 1,567 1,820 Associates & JV Inc 1 (13) 0 0 0 Net Interest (Exp)/Inc 26 16 (9) (20) (5) Exceptional Gain/(Loss) (240) (75) 0 0 0 Pre-tax Profit 1,817 1,766 1,559 1,597 1,864 Tax (415) (182) (302) (278) (329) Minority Interest 0 19 19 19 19 Net Profit 1,403 1,603 1,276 1,338 1,554 Net Profit before Except. 1,642 1,678 1,276 1,338 1,554 EBITDA 2,548 2,378 2,157 2,266 2,537 Growth Revenue Gth (%) 16.9 5.5 (0.4) 15.2 11.1 EBITDA Gth (%) 7.8 (6.7) (9.3) 5.1 11.9 Opg Profit Gth (%) 1.5 (8.9) (16.7) 3.3 16.1 Net Profit Gth (%) (1.8) 14.3 (20.4) 4.9 16.1 Margins & Ratio Gross Margins (%) 31.9 28.5 25.4 23.2 23.4 Opg Profit Margin (%) 25.3 21.9 18.3 16.4 17.1 Net Profit Margin (%) 17.8 19.2 15.4 14.0 14.6 ROAE (%) 10.7 10.4 7.8 7.7 8.4 ROA (%) 8.3 8.1 6.1 6.1 6.6 ROCE (%) 10.1 9.1 6.4 6.5 7.1 Div Payout Ratio (%) 27.8 22.7 21.5 21.5 21.5 Net Interest Cover (x) NM NM 170.9 78.4 334.2 Margins Trend 27.0% 25.0% 23.0% 21.0% 19.0% 17.0% 15.0% 13.0% 2012A 2013F 2014F 2015F 2016F Operating Margin % Net Income Margin % Page 15
Genting Malaysia Quarterly / Interim Income Statement (RM m) FY Dec 3Q2013 4Q2013 1Q2014 2Q2014 2014 3Q2014 Revenue 2,121 2,120 2,026 1,911 2,235 Cost of Goods Sold (1,581) (1,613) (1,449) (1,476) (1,687) Gross Profit 540 508 577 435 548 Other Oper. (Exp)/Inc (134) (149) (149) (153) (148) Operating Profit 406 358 428 283 400 Associates & JV Inc (13) 0 0 0 0 Net Interest (Exp)/Inc (6) 9 10 14 12 Exceptional Gain/(Loss) (76) 64 (3) (4) (65) Pre-tax Profit 366 438 463 319 374 Tax (48) (46) (114) (76) (120) Minority Interest 5 9 9 12 12 Net Profit 323 401 358 254 266 Net profit bef Except. 398 337 361 258 331 EBITDA 582 515 606 461 575 Revenue Trend 2,500 2,000 1,500 1,000 500 0 2Q2012 3Q2012 4Q2012 1Q2013 Revenue 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 Revenue Growth % (QoQ) 3Q2014 25% 20% 15% 10% 5% 0% -5% -10% Growth Revenue Gth (%) (4.7) 0.0 (4.4) (5.7) 16.9 EBITDA Gth (%) (19.4) (11.5) 17.6 (23.9) 24.7 Opg Profit Gth (%) (26.7) (11.8) 19.5 (33.9) 41.4 Net Profit Gth (%) (29.9) 24.1 (10.5) (29.0) 4.6 Margins Gross Margins (%) 25.5 23.9 28.5 22.8 24.5 Opg Profit Margins (%) 19.1 16.9 21.1 14.8 17.9 Net Profit Margins (%) 15.2 18.9 17.7 13.3 11.9 Balance Sheet (RM m) FY Dec 2012A 2013F 2014F 2015F 2016F Asset Breakdown (2014) Net Fixed Assets 5,201 6,088 7,782 8,450 9,333 Invts in Associates & JVs 13 0 0 0 0 Other LT Assets 7,146 8,346 9,244 9,065 8,887 Cash & ST Invts 4,011 4,812 3,480 3,931 4,445 Inventory 77 88 85 101 112 Debtors 396 485 439 505 561 Other Current Assets 19 33 33 33 33 Total Assets 16,863 19,852 21,063 22,086 23,371 ST Debt 217 197 197 197 197 Creditor 1,472 1,616 1,604 1,903 2,108 Other Current Liab 183 227 227 227 227 LT Debt 895 1,483 1,845 1,627 1,549 Other LT Liabilities 940 851 851 851 851 Shareholder s Equity 13,157 15,458 16,338 17,281 18,439 Minority Interests 0 20 0 0 0 Total Cap. & Liab. 16,863 19,852 21,063 22,086 23,371 Non-Cash Wkg. Capital (1,163) (1,237) (1,274) (1,490) (1,628) Net Cash/(Debt) 2,899 3,132 1,438 2,107 2,699 Debtors Turn (avg days) 18.3 21.3 19.3 19.3 19.3 Creditors Turn (avg days) 115.0 104.4 105.0 95.7 98.1 Inventory Turn (avg days) 5.7 5.6 5.6 5.1 5.2 Asset Turnover (x) 0.5 0.4 0.4 0.4 0.5 Current Ratio (x) 2.4 2.7 2.0 2.0 2.0 Quick Ratio (x) 2.4 2.6 1.9 1.9 2.0 Net Debt/Equity (X) CASH CASH CASH CASH CASH Net Debt/Equity ex MI (X) CASH CASH CASH CASH CASH Capex to Debt (%) 40.0 81.3 111.8 72.2 88.8 Z-Score (X) 5.7 4.9 4.5 4.6 4.6 Page 16
Genting Malaysia Cash Flow Statement (RM m) FY Dec 2012A 2013F 2014F 2015F 2016F Pre-Tax Profit 1,817 1,766 1,559 1,597 1,864 Dep. & Amort. 517 552 589 649 667 Tax Paid (494) (479) (302) (278) (329) Assoc. & JV Inc/(loss) (1) 13 0 0 0 Chg in Wkg.Cap. (87) 222 37 216 138 Other Operating CF 177 27 (41) (30) (45) Net Operating CF 1,929 2,102 1,842 2,154 2,295 Capital Exp.(net) (444) (1,366) (2,283) (1,317) (1,550) Invts in Assoc. & JV (58) (199) 0 0 0 Div from Assoc & JV 0 0 0 0 0 Other Investing CF 54 (213) 41 30 45 Net Investing CF (448) (1,778) (2,242) (1,287) (1,505) Div Paid (366) (396) (396) (396) (396) Chg in Gross Debt (670) 496 559 (21) 119 Capital Issues 26 (4) 0 0 0 Other Financing CF (10) 562 (791) 0 0 Net Financing CF (1,020) 658 (627) (416) (276) Currency Adjustments (4) 52 0 0 0 Chg in Cash 457 1,033 (1,027) 452 514 Opg CFPS (sen) 34.1 31.8 30.6 32.8 36.5 Free CFPS (sen) 25.1 12.5 (7.5) 14.2 12.6 Capital Expenditure 2500 2000 1500 1000 500 0 2012A 2013F 2014F 2015F 2016F Capital Expenditure (-) Target Price & Ratings History 4.80 4.60 4.40 4.20 4.00 3.80 RM 1 2 3 4 5 S.No. Da te Closing Ta rge t Price Pric e Ra ting 1: 30 May 14 4.07 4.50 Hold 2: 29 Aug 14 4.51 4.35 Hold 3: 24 Nov 14 4.19 4.35 Hold 4: 05 Dec 14 4.13 4.35 Hold 5: 19 Dec 14 3.96 4.35 Hold 3.60 Feb-14 Jun-14 Oct-14 Feb-15 Note : Share price and Target price are adjusted for corporate actions. Page 17
Malaysia Company Focus Magnum Bloomberg: MAG MK Reuters: MAGM.KL Refer to important disclosures at the end of this report DBS Group Research. Equity 11 Feb 2015 HOLD RM2.81 2.81 KLCI : 1,811.12 Price Target : 12-Month RM 2.45 (Prev RM 2.74) Reason for Report : GST implications Potential Catalyst: New game variants AllianceDBS vs Consensus: Below consensus Analyst King Yoong CHEAH CFA +603 2604 3908 cheahky@alliancedbs.com Price Relative 4.5 4.0 3.5 3.0 2.5 RM 2.0 78 Feb-11 Feb-12 Feb-13 Feb-14 Feb-15 Magnum (LHS) Relative KLCI INDEX (RHS) Forecasts and Valuation FY Dec (RM m) 2013A 2014A 2015A 2016F Revenue 2,991 2,885 2,955 2,985 EBITDA 473 440 413 405 Pre-tax Profit 347 387 365 364 Net Profit 268 260 248 251 Net Pft (Pre Ex.) 327 260 248 251 EPS (sen) 18.7 18.2 17.4 17.6 EPS Pre Ex. (sen) 22.9 18.2 17.4 17.6 EPS Gth (%) (21) (3) (4) 1 EPS Gth Pre Ex (%) 26 (20) (4) 1 Diluted EPS (sen) 22.9 18.2 17.4 17.6 Net DPS (sen) 17.9 20.0 14.8 14.9 BV Per Share (sen) 172.4 195.1 193.3 195.9 PE (X) 15.0 15.4 16.1 16.0 PE Pre Ex. (X) 12.3 15.4 16.1 16.0 P/Cash Flow (X) 8.6 6.3 23.3 17.3 EV/EBITDA (X) 9.7 9.7 10.5 10.7 Net Div Yield (%) 6.4 7.1 5.3 5.3 P/Book Value (X) 1.6 1.4 1.5 1.4 Net Debt/Equity (X) 0.2 0.1 0.1 0.1 ROAE (%) 9.1 9.8 8.9 9.0 Earnings Rev (%): (4) (22) (25) Consensus EPS (sen sen): 27.6 27.6 N/A Other Broker Recs: B: 2 S: 0 H: 7 ICB Industry : Financials ICB Sector: General Financial Principal Business: Market leader in NFO Relative Index 218 198 178 158 138 118 98 A taxing game Weak consumer sentiment, high effective tax rate and GST to drag earnings Cut FY14-FY16F earnings by 3%-30% HOLD, trimmed TP to RM2.45 FY14 earnings might disappoint the market. We expect FY14 core earnings to miss consensus estimate of RM275m, dragged by (1) a continued challenging environment, (2) persistent high effective tax rate, and, (3) fair value loss of quoted investments. Double tax whammy. Although the GST impact will be less severe than feared, given that the GST computation would take into account prize payouts, it could still drag forward earnings. Besides, we understand Magnum s effective tax rate would remain high at above 30% going forward because interest expense for a portion of its loan is not tax-deductible Cut earnings. We cut FY14/15F/16F earnings by 3%/28%/30% after accounting for the following: (1) assuming 1% drop (previously 2% growth) in FY15F gaming revenue due to weak consumer sentiment, and a recovery in subsequent years, (2) assume NFOs will fully absorb the GST, and (3) higher effective tax rate (32% in FY15 and 31% in FY16 vs 25% assumed previously). Trimmed TP, maintain HOLD. Following the earnings downgrade, we trimmed TP to RM2.45, based on the dividend discount model and assuming (i) 85% dividend payout ratio, (ii) 7.3% cost of equity, and (iii) 1% terminal growth rate. Dividend yield of over 5% should continue to support the share price. At A Glance Issued Capital (m shrs) 1,425 Mkt. Cap (RMm/US$m) 4,003 / 1,126 Major Shareholders Casi Management Sdn Bhd (%) 28.4 Asia 4D Holdings Ltd (%) 11.2 (%) 0.0 Free Float (%) 60.4 Avg. Daily Vol.( 000) 642 Source of all data: Company, AllianceDBS, Bloomberg Finance L.P. www.dbsvickers.com ed: SGC / sa: WMT
Magnum INVESTMENT THESIS Profile Magnum is the second largest NFO by market share. Rationale Earnings uncertainties with the implementation of GST GST from 2015 will impact margins (unless passed on via lower prize payout). Challenging operating environment Declining revenue with rising competition and weak consumer sentiment Valuation Following the earnings downgrade, we trimmed TP to RM2.45, based on the dividend discount model and assuming (i) 85% dividend payout ratio, (ii) 7.3% cost of equity, and (iii) 1% terminal growth rate. Dividend yield of over 5% should continue to support the share price. Risks Declining revenue with rising competition and weak consumer sentiment Increased industry competition and weak consumer sentiment could significantly impact ticket sales Malaysian gaming tax hike, impact of GST Gaming was spared in the recent budget, but NFOs remain vulnerable to potentially higher gaming tax going forward (pool betting tax was last raised in 2010, gaming tax in 1998). GST from 2015 will impact margins (unless passed on via lower prize payouts). Source: AllianceDBS Page 19
Magnum Key Assumptions Segmental Breakdown FY Dec 2012A 2013A 2014A 2015A 2016F Revenues (RM m) Gaming 3,086 2,989 2,982 2,952 2,982 Corporate and Others 3 3 (97) 3 3 Total 3,089 2,991 2,885 2,955 2,985 Operating profit (RM m) Gaming 412 464 449 408 400 Corporate and Others 4 (5) (18) (5) (5) Total 416 460 432 404 396 Operating Margins (%) Gaming 13.4 15.5 15.1 13.8 13.4 Corporate and Others 132.2 (164.5) 18.1 (151.8) (151.8) Total 13.5 15.4 15.0 13.7 13.3 Income Statement (RM m) FY Dec 2012A 2013A 2014A 2015A 2016F Revenue 3,089 2,991 2,885 2,955 2,985 Cost of Goods Sold (2,574) (2,439) (2,358) (2,456) (2,494) Gross Profit 515 552 527 499 491 Other Opng (Exp)/Inc (99) (93) (95) (95) (95) Operating Profit 416 460 432 404 396 Net Interest (Exp)/Inc (94) (54) (44) (38) (32) Exceptional Gain/(Loss) 80 (59) 0 0 0 Pre-tax Profit 402 347 387 365 364 Tax (64) (73) (128) (117) (113) Minority Interest 2 (5) 0 0 0 Net Profit 340 268 260 248 251 Net Profit before Except. 260 327 260 248 251 EBITDA 434 473 440 413 405 Growth Revenue Gth (%) (12.4) (3.2) (3.6) 2.4 1.0 EBITDA Gth (%) (32.5) 9.0 (6.9) (6.3) (1.8) Opg Profit Gth (%) (31.1) 10.4 (6.0) (6.5) (2.0) Net Profit Gth (%) (29.2) (21.2) (3.1) (4.3) 0.9 Margins & Ratio Gross Margins (%) 16.7 18.5 18.3 16.9 16.4 Opg Profit Margin (%) 13.5 15.4 15.0 13.7 13.3 Net Profit Margin (%) 11.0 9.0 9.0 8.4 8.4 ROAE (%) 10.2 9.1 9.8 8.9 9.0 ROA (%) 5.4 5.6 6.8 6.6 7.0 ROCE (%) 6.1 8.0 8.0 7.5 7.7 Div Payout Ratio (%) 50.8 96.0 110.8 85.7 85.7 Net Interest Cover (x) 4.4 8.4 9.7 10.5 12.2 Margins Trend 17.0% 16.0% 15.0% 14.0% 13.0% 12.0% 11.0% 10.0% 9.0% 8.0% 7.0% Gaming revenue to drop in 2015 before recovering 2012A 2013A 2014A 2015A 2016F Operating Margin % Net Income Margin % Page 20
Magnum Quarterly / Interim Income Statement (RM m) FY Dec 3Q2013 4Q2013 1Q2014 2Q2014 2014 3Q2014 Revenue Trend 900 800 20% 15% Revenue 702 741 793 697 670 Cost of Goods Sold (589) (625) (642) (578) (559) Gross Profit 113 116 151 118 111 Other Oper. (Exp)/Inc (23) (18) (19) (11) (24) Operating Profit 90 98 132 107 88 Other Non Opg (Exp)/Inc 0 0 0 0 0 Associates & JV Inc 0 0 0 0 0 Net Interest (Exp)/Inc (13) (13) (13) (13) (13) Exceptional Gain/(Loss) 0 (13) 0 0 0 Pre-tax Profit 77 72 119 95 75 Tax (12) (16) (34) (25) (29) Minority Interest 0 0 (2) (1) (1) Net Profit 65 56 83 68 45 Net profit bef Except. 65 69 83 68 45 EBITDA 93 100 134 109 90 700 600 500 400 300 200 100 0 2Q2012 3Q2012 4Q2012 Revenue 1Q2013 2Q2013 3Q2013 4Q2013 1Q2014 2Q2014 Revenue Growth % (QoQ) 3Q2014 10% 5% 0% -5% -10% -15% -20% Growth Revenue Gth (%) 0.3 5.5 6.9 (12.1) (3.8) EBITDA Gth (%) (9.1) 8.4 33.2 (18.2) (17.9) Opg Profit Gth (%) (9.2) 8.5 34.2 (18.5) (18.4) Net Profit Gth (%) 9,880.6 (13.4) 47.2 (17.6) (33.2) Margins Gross Margins (%) 16.1 15.7 19.0 17.0 16.6 Opg Profit Margins (%) 12.9 13.2 16.6 15.4 13.1 Net Profit Margins (%) 9.2 7.6 10.4 9.8 6.8 Balance Sheet (RM m) FY Dec 2012A 2013A 2014A 2015A 2016F Asset Breakdown (2014) Net Fixed Assets 138 40 32 23 14 Invts in Associates & JVs 1 0 0 0 0 Other LT Assets 4,141 2,984 2,984 2,984 2,984 Cash & ST Invts 1,139 498 672 472 338 Inventory 2 1 1 1 1 Debtors 198 74 61 62 63 Other Current Assets 279 121 121 121 121 Total Assets 5,898 3,719 3,871 3,664 3,522 ST Debt 187 25 30 30 30 Creditor 391 180 130 80 30 Other Current Liab 26 6 6 6 5 LT Debt 1,130 989 859 729 599 Other LT Liabilities 732 4 4 4 4 Shareholder s Equity 3,405 2,480 2,807 2,781 2,818 Minority Interests 27 36 36 36 36 Total Cap. & Liab. 5,898 3,719 3,871 3,664 3,522 Non-Cash Wkg. Capital 62 11 48 100 151 Net Cash/(Debt) (178) (515) (217) (287) (291) Debtors Turn (avg days) 35.2 16.6 8.5 7.6 7.7 Creditors Turn (avg days) 61.8 42.9 24.0 15.6 8.0 Inventory Turn (avg days) 0.4 0.2 0.2 0.2 0.2 Asset Turnover (x) 0.5 0.6 0.8 0.8 0.8 Current Ratio (x) 2.7 3.3 5.2 5.7 8.1 Quick Ratio (x) 2.2 2.7 4.4 4.6 6.2 Net Debt/Equity (X) 0.1 0.2 0.1 0.1 0.1 Net Debt/Equity ex MI (X) 0.1 0.2 0.1 0.1 0.1 Capex to Debt (%) (10.8) (41.7) (0.9) (1.1) (1.4) Z-Score (X) 2.0 3.5 4.0 5.1 7.5 Page 21
Magnum Cash Flow Statement (RM m) FY Dec 2012A 2013A 2014A 2015A 2016F Pre-Tax Profit 322 405 387 365 364 Dep. & Amort. 8 8 8 9 9 Tax Paid (101) (106) (128) (117) (113) Assoc. & JV Inc/(loss) 0 0 0 0 0 Chg in Wkg.Cap. 133 10 (37) (52) 0 Other Operating CF 135 146 410 (34) (28) Net Operating CF 496 464 641 172 232 Capital Exp.(net) 143 423 8 9 9 Other Invts.(net) 0 0 0 0 0 Invts in Assoc. & JV 0 0 0 0 0 Div from Assoc & JV 0 0 0 0 0 Other Investing CF (20) (20) (44) (38) (32) Net Investing CF 123 403 (36) (30) (23) Div Paid (172) (256) (285) (211) (213) Chg in Gross Debt (793) (199) (125) (130) (130) Capital Issues 0 0 0 0 0 Other Financing CF (80) (697) 0 0 0 Net Financing CF (1,045) (1,152) (410) (341) (343) Currency Adjustments 0 0 0 0 0 Chg in Cash (426) (285) 195 (199) (135) Opg CFPS (sen) 25.4 31.8 47.5 15.6 16.3 Free CFPS (sen) 44.8 62.1 45.5 12.6 16.9 Capital Expenditure 450 400 350 300 250 200 150 100 50 0 2012A 2013A 2014A 2015A 2016F Capital Expenditure (-) Target Price & Ratings History 3.24 3.14 3.04 2.94 2.84 2.74 RM 2 1 3 4 5 6 S.No. Da te Closing Ta rge t Price Pric e Ra ting 1: 26 Feb 14 3.02 3.35 Buy 2: 04 Mar 14 3.08 3.35 Buy 3: 22 May 14 3.02 3.16 Hold 4: 22 Aug 14 3.07 3.16 Hold 5: 10 Nov 14 3.07 3.16 Hold 6: 28 Nov 14 2.92 2.74 Hold 2.64 2.54 2.44 Feb-14 Jun-14 Oct-14 Feb-15 Note : Share price and Target price are adjusted for corporate actions. Page 22
Magnum AllianceDBS Research recommendations are based an Absolute Total Return* Rating system, defined as follows: STRONG BUY (>20% total return over the next 3 months, with identifiable share price catalysts within this time frame) BUY (>15% total return over the next 12 months for small caps, >10% for large caps) HOLD (-10% to +15% total return over the next 12 months for small caps, -10% to +10% for large caps) FULLY VALUED (negative total return i.e. > -10% over the next 12 months) SELL (negative total return of > -20% over the next 3 months, with identifiable catalysts within this time frame) Share price appreciation + dividends GENERAL DISCLOSURE/DISCLAIMER This report is prepared by AllianceDBS Research Sdn Bhd ( ADBSR ) (formerly known as HwangDBS Vickers Research Sdn Bhd), a subsidiary of Alliance Investment Bank Berhad ( AIBB ) and an associate of DBS Vickers Securities Holdings Pte Ltd ( DBSVH ). This report is solely intended for the clients of DBS Bank Ltd and DBS Vickers Securities (Singapore) Pte Ltd, its respective connected and associated corporations and affiliates (collectively, the DBS Vickers Group ) only and no part of this document may be (i) copied, photocopied or duplicated in any form or by any means or (ii) redistributed without the prior written consent of ADBSR. The research set out in this report is based on information obtained from sources believed to be reliable and ADBSR, its holding company AIBB, their respective connected and associated corporations, affiliates and their respective directors, officers, employees and agents (collectively, the Alliance Bank Group ) do not make any representation or warranty as to its accuracy, completeness or correctness. Opinions expressed are subject to change without notice. This document is prepared for general circulation. Any recommendation contained in this document does not have regard to the specific investment objectives, financial situation and the particular needs of any specific addressee. This document is for the information of addressees only and is not to be taken in substitution for the exercise of judgement by addressees, who should obtain separate independent legal or financial advice. The Alliance Bank Group accepts no liability whatsoever for any direct, indirect and/or consequential loss (including any claims for loss of profit) arising from any use of and/or reliance upon this document and/or further communication given in relation to this document. This document is not to be construed as an offer or a solicitation of an offer to buy or sell any securities. The Alliance Bank Group, along with its affiliates and/or persons associated with any of them may from time to time have interests in the securities mentioned in this document. The Alliance Bank Group may have positions in, and may effect transactions in securities mentioned herein and may also perform or seek to perform broking, investment banking/corporate advisory and other banking services for these companies. They may also have received compensation and/or seek to obtain compensation for broking, investment banking/corporate advisory and other services from the subject companies. Any valuations, opinions, estimates, forecasts, ratings or risk assessments herein constitutes a judgment as of the date of this report, and there can be no assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments. The information in this document is subject to change without notice, its accuracy is not guaranteed, it may be incomplete or condensed and it may not contain all material information concerning the company (or companies) referred to in this report. The valuations, opinions, estimates, forecasts, ratings or risk assessments described in this report were based upon a number of estimates and assumptions and are inherently subject to significant uncertainties and contingencies. It can be expected that one or more of the estimates on which the valuations, opinions, estimates, forecasts, ratings or risk assessments were based will not materialize or will vary significantly from actual results. Therefore, the inclusion of the valuations, opinions, estimates, forecasts, ratings or risk assessments described herein IS NOT TO BE RELIED UPON as a representation and/or warranty by the Alliance Bank Group (and/or any persons associated with the aforesaid entities), that: (a) (b) such valuations, opinions, estimates, forecasts, ratings or risk assessments or their underlying assumptions will be achieved, and there is any assurance that future results or events will be consistent with any such valuations, opinions, estimates, forecasts, ratings or risk assessments stated therein. Any assumptions made in this report that refers to commodities, are for the purposes of making forecasts for the company (or companies) mentioned herein. They are not to be construed as recommendations to trade in the physical commodity or in the futures contract relating to the commodity referred to in this report. DBS Vickers Securities (USA) Inc ("DBSVUSA")"), a U.S.-registered broker-dealer, does not have its own investment banking or research department, nor has it participated in any investment banking transaction as a manager or co-manager in the past twelve months. ANALYST CERTIFICATION The research analyst primarily responsible for the content of this research report, in part or in whole, certifies that the views about the companies and their securities expressed in this report accurately reflect his/her personal views. The analyst also certifies that no part of his/her compensation was, is, or will be, directly, or indirectly, related to specific recommendations or views expressed in this report. As of the date the report is published, the analyst and his/her spouse and/or relatives who are financially dependent on the analyst, do not hold interests in the securities recommended in this report ( interest includes direct or indirect ownership of securities). COMPANY-SPECIFIC / REGULATORY DISCLOSURES 1. DBS Bank Ltd., DBS Vickers Securities (Singapore) Pte Ltd ( DBSVS ), their subsidiaries and/or other affiliates do not have a proprietary position in the securities recommended in this report as of 9 Feb 2015. 2. DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may beneficially own a total of 1% of any class of common equity securities of the company mentioned as of 11 Feb 2015. 3. Compensation for investment banking services: DBS Bank Ltd., DBSVS, DBSVUSA, their subsidiaries and/or other affiliates may have received compensation, within the past 12 months, and within the next 3 months may receive or intends to seek compensation for investment banking services fromthe Page 23