LEISURE AND HOSPITALITY

GENT MALAYSIA
(GENM MK)

8 March 2016

New attractions to underpin FY17F profit growth

HOLD

Company report

(Maintained)

Gan Huey Ling, CFA

gan-huey-ling@ambankgroup.com

Rationale for report: Company Update

03 2036 2305
Price
Fair Value
52-week High/Low

RM4.37
RM4.45
RM4.70/RM3.75

Key Changes
Fair value
EPS

Unchanged

YE to Dec
Revenue (RMmil)
Net Profit (RMmil)
EPS (sen)
EPS growth (%)
Consensus net (RMmil)
DPS (sen)
PE (x)
EV/EBITDA (x)
Div yield (%)
ROE (%)
Net gearing (%)

Investment Highlights

FY15

FY16F

FY17F

FY18F

8,395.9
1,257.9
21.2
5.8
1,213.0
7.1
20.6
12.6
1.6
7.1
0.6

9,109.7
1,297.8
21.9
3.2
1,358.0
7.5
20.0
13.0
1.7
6.6
4.1

9,892.7 10,893.0
1,439.5 1,612.3
24.2
27.2
10.9
12.0
1,612.0 1,727.0
8.0
10.0
18.0
16.1
11.9
10.8
1.8
2.3
7.0
7.5
6.7
8.1

Stock and Financial Data

Shares Outstanding (million)

Market Cap (RMmil)
Book value (RM/share)
P/BV (x)
ROE (%)
Net Gearing (%)

5,938.0
25,949.1
3.21
1.2
7.1
0.6

Major Shareholders

Genting Bhd (49.3%)

Worldwide Fund (2.1%)

Free Float (%)

Avg Daily Value (RMmil)

50.7
21.1

Price performance
Absolute (%)
Relative (%)

3mth

6mth

12mth

+0.9
-0.5

+8.5
+1.2

+4.3
+11.1

Maintain HOLD on Genting Malaysia Bhd (GenM) with an

unchanged RNAV-based fair value of RM4.45/share. We
have raised GenMs FY17F earnings by 7% to account for a
lower effective tax rate and higher number of visitors. We
have left GenMs FY16F earnings forecast unchanged.
GenMs effective tax rate is assumed to be low at 18% each
in FY16F and FY17F (FY15: 18.8%) due to the reinvestment
allowances in respect of the groups capex at Resorts
World Genting, Malaysia.
We have forecast GenMs net profit growth at a small 3% in
FY16F before climbing by a stronger 11% in FY17F. We
believe that GenMs FY16F net profit would be unexciting
due to pre-operating expenses for new attractions, which
will be opening at Resorts World Genting in 2HFY16, fullyear impact of GST (Goods and Services Tax) and
lacklustre earnings from the UK division.
GenMs FY17F earnings growth is expected to be
underpinned by the opening of the Sky Avenue Shopping
th
Mall and Sky Way Cable Car Line in 2HFY16. 20 Century
Fox World Theme Park is also targeted for opening in
FY17F although the exact date has yet to be finalised. We
have forecast EBITDA of the leisure and hospitality
division in Malaysia to improve by 3% in FY16F and 9% in
FY17F.
We have forecast combined losses at the UK and Bahamas
units at RM312mil in FY16F and RM275mil in FY17F.
Without losses of RM366.5mil from these two divisions, we
reckon that GenMs EBITDA would have been higher by
RM366.5mil or 29% in FY15.
We believe that the UK division would continue to be
affected by a weak volume of business at the casinos in
London in FY16F.
A significant portion of the customers comes from China
and Middle East, which have been affected by the anticorruption campaign and the plunge in crude oil prices
respectively. As for Resorts World Birmingham, which
opened in October 2015, we think that it would take time to
grow.
We have assumed GenMs capex at RM2.5bil each in
FY16F and FY17F. Most of the capex are for Resorts World
Genting, Malaysia. Capex for GenMs overseas operations
is expected to be minimal. GenM has enough reserves to
finance its capex as reflected in the increase in gross cash
from RM2.8bil in FY14 to RM4.5bil in FY15. GenM issued
two tranches of medium term notes of RM1.1bil and
RM1.3bil in August 2015.

8 March 2016

Genting Malaysia

CHART 1: FY15 GEOGRAPHICAL EBITDA BREAKDOWN (LEISURE AND HOSPITALITY DIVISION)

UK, -6.5%

US, 5.9%

Malaysia, 100.6%

Source: Company, AmInvestment Bank Bhd

MAINTAIN HOLD WITH UNCHANGED FAIR

VALUE OF RM4.45/SHARE

UPDATES
FY17F earnings growth of Malaysia unit to be

We are keeping our HOLD recommendation on Genting

Malaysia (GenM) with an unchanged RNAV-based fair
value of RM4.45/share. Our fair value assumes an 18%
discount to GenMs RNAV of RM5.40/share.
The leisure and hospitality division in Malaysia accounts
for 83% of GenMs RNAV while the value of GenMs
shares in Genting Hong Kong (GenHK) accounts for
another 6%. GenMs 17.8% investment in GenHK is worth
about US$457.9mil or RM1.9bil at a share price of
US$0.32 and exchange rate of US$1.00: RM4.10.
We believe that GenMs FY16F earnings would continue to
be driven by the leisure and hospitality unit in Malaysia.
We reckon that the groups subsidiaries in UK (United
Kingdom) and Bahamas would continue to be in the red in
FY16F.
GenMs effective tax rate is expected to be low at 18.0% in
FY16F (FY15: 18.8%) as the group claims reinvestment
allowances on its capital expenditure (capex) on Resorts
World Genting, Malaysia. GenMs capex is estimated at
more than RM2bil each in FY16F and FY17F.
In spite of the heavy capex, GenMs balance sheet is
anticipated to be clean. The groups gross cash stood at
RM4.5bil as at end-FY15. GenM raised RM2.4bil in
medium-term notes in August 2015.

underpinned by new attractions

We have forecast the EBITDA of GenMs leisure and
hospitality division in Malaysia to rise by 9% in FY17F vs.
3% in FY16F.
We have assumed that the number of visitors at Resorts
World Genting, Malaysia would expand by 3% in FY16F
and 6% in FY17F. GenMs target is to attract 30mil visitors
to Resorts World Genting by year 2020.
The stronger earnings growth in FY17F is expected to be
underpinned by the opening of the shopping mall and
th
cable car line in 2HFY16. 20 Century Fox World Theme
Park is also expected to open in FY17F although the exact
opening date has yet to be finalised.
The three attractions are envisaged to improve the number
of visitors and revenue yields at Resorts World Genting,
Malaysia.
Sky Avenue Shopping Mall is expected to feature about
165 units of retail outlets with net lettable area of 390,000
sq ft in total.
The new cable car line, which will be called Sky Way, is
anticipated to bring 4,000 to 7,000 people to Resorts World
th
Genting every hour. 20 Century Fox World Theme Park is
envisaged to feature more than 25 rides on 25 acres of
land.
We estimate that Sky Avenue Shopping Mall costs more
than RM500mil to build while the theme park would cost
more than RM2bil to develop. Although the number of
rides at the theme park has not changed, the cost of the
theme park has climbed due to larger and more thrilling

AmInvestment Bank Bhd

8 March 2016

Genting Malaysia
rides and the depreciation of the RM against foreign
currencies.
We understand that 20% of Phase 1s capex of RM8.1bil
for Resorts World Genting is denominated in foreign
currencies. Of these, a large proportion is in USD.

Capex at Resorts World Genting, Malaysia is anticipated to

be RM10.4bil over 10 years. Capex under Phase 1 is
estimated at RM8.1bil while capex under Phase 2 would
cover the balance RM2.3bil.
th

Bahamas and UK operations are an earnings drag

After 20 Century Fox Theme Park is completed in FY17F,

we believe that GenM would start developing a luxury hotel
at the highlands resort.

Although the outlook for GenMs Malaysia operations is

positive, the groups units in Bahamas and UK are a drag
on earnings.

Due to the heavy capex, GenMs free cash flows are

estimated to be negative 5.5 sen/share in FY16F and
negative 3 sen/share in FY17F.

We reckon that without the losses of RM124.2mil in UK

and RM242.3mil in Bimini Island, Bahamas, GenMs
EBITDA would have been higher by RM366.5mil or 29% in
FY15. We have forecast losses of RM312mil and
RM275mil for the two divisions in FY16F and FY17F
respectively.

GenM has enough cash reserves to finance the capex at

Resorts World Genting, Malaysia. The group is flushed
with cash after the issuance of RM1.1bil five-year 4.5%
MTN and RM1.3bil 10-year 4.9% MTN in August 2015.
GenMs gross cash stood at RM4.5bil as at end-December
2015 while net gearing was 0.6%.

Resorts World Biminis losses are expected to decline in

FY17F on the back of a higher volume of business. This is
envisaged to be supported by the opening of 100 rooms at
Hilton Hotel in mid-FY16F.
The resort cum casino in Bimini Island bled in FY15 due to
insufficient visitors. Visitors were partly discouraged by the
long ferry ride of three hours between Miami and Bimini
Island.
Resorts World Biminis current strategy is to tie up with
airlines and speedier ferry operators. We estimate that
Resorts World Bimini has 20 to 30 table games and 100
slot machines and electronic table games.
In UK, the volume of casino business in London fell by
15% in FY15 due to the anti-corruption campaign in China.
We reckon that the fall in crude oil prices had also affected
the patronage of customers from the Middle East. A large
portion of clientele at the casinos in London comes from
China and Middle East.
Going forward, GenMs strategy is to target the premium
mass market for the casinos in London and increase its
market share for the casinos out of the city (home market).
Volume of casino business in the home market rose by
19% in FY15.
Resorts World Birmingham is anticipated to remain in the
red in FY16F as it would take time to grow the business.
The resort cum casino opened in October 2015. Resorts
World Birmingham has about 30 gaming tables and 150
slot machines and electronic table games.
Resorts World Birmingham also has cinemas, retail outlets
and a conference centre for events up to 900 people.
These are expected to draw crowds into the casino in the
future.
Enough cash to finance capex in Malaysia
We have forecast GenMs capex at RM2.5bil each in
FY16F and FY17F. The capex are mainly in respect of
Resorts World Genting, Malaysia. Capex for the overseas
operations is expected to be minimal.

AmInvestment Bank Bhd

8 March 2016

Genting Malaysia

TABLE 1 : FINANCIAL DATA

Income Statement (RMmil, YE 31 Dec)

2014

2015

2016F

2017F

2018F

8,229.4
1,944.8
(607.8)
1,337.0
148.2
54.1
(14.8)
1,524.5
(384.2)
48.4
1,188.7
1,203.5

8,395.9
1,993.3
(684.1)
1,309.2
161.7
59.1
0.0
1,530.0
(287.0)
14.9
1,257.9
1,257.9

9,109.7
2,065.7
(737.1)
1,328.7
172.4
61.6
0.0
1,562.7
(281.3)
16.4
1,297.8
1,297.8

9,892.7
2,290.2
(799.9)
1,490.4
184.1
59.0
0.0
1,733.5
(312.0)
18.0
1,439.5
1,439.5

10,893.0
2,562.3
(883.6)
1,678.8
196.8
66.5
0.0
1,942.1
(349.6)
19.8
1,612.3
1,612.3

2014

2015

2016F

2017F

2018F

7,426.5
4,482.2
3,908.0
15,816.7
2,789.3
100.3
133.3
1,957.5
4,980.5
402.2
207.1
1,643.3
2,252.7
1,411.1
859.8
2,270.9
16,304.3
(30.6)
2.75

10,475.1
5,367.3
3,137.2
18,979.5
4,599.7
119.8
1,035.8
2,786.0
8,541.2
2,647.7
784.0
235.0
3,666.7
3,840.9
906.8
4,747.7
19,080.4
25.9
3.21

12,238.0
5,367.3
3,139.7
20,745.1
3,993.8
135.1
539.1
3,385.2
8,053.2
586.7
823.2
2,612.0
4,021.9
3,917.7
859.8
4,777.5
19,956.6
42.3
3.36

13,938.2
5,367.3
3,139.7
22,445.2
3,535.4
145.8
585.4
3,452.4
7,719.1
633.2
864.3
2,799.9
4,297.4
3,996.0
859.8
4,855.8
20,950.7
60.3
3.53

15,554.6
5,367.3
3,139.7
24,061.6
3,284.9
159.8
644.6
3,539.2
7,628.5
693.8
907.5
3,044.3
4,645.7
4,076.0
859.8
4,935.8
22,028.6
80.1
3.71

2014

2015

2016F

2017F

2018F

1,524.5
607.8
(515.1)
(76.5)
1,540.7
(1,826.7)
(332.7)
104.0
(2,055.4)
(123.6)
(4.2)
(391.3)
(12.4)
(531.5)
(1,046.1)
3,720.1
96.5
2,770.4

1,530.0
684.1
(212.9)
(144.2)
1,857.0
(2,496.7)
(321.4)
243.6
(2,574.5)
2,663.2
(61.6)
(356.7)
(95.3)
2,149.6
1,432.1
2,770.3
316.6
4,518.9

1,562.7
737.1
(447.5)
364.8
2,217.1
(2,500.0)
0.0
71.9
(2,428.1)
26.8
0.0
(421.6)
0.0
(394.8)
(605.8)
4,518.9
0.0
3,913.1

1,733.5
799.9
(538.4)
392.7
2,387.7
(2,500.0)
0.0
70.9
(2,429.1)
28.4
0.0
(445.4)
0.0
(417.0)
(458.4)
3,913.1
0.0
3,454.7

1,942.1
883.6
(583.3)
441.8
2,684.1
(2,500.0)
0.0
69.9
(2,430.1)
29.9
0.0
(534.4)
0.0
(504.5)
(250.5)
3,454.7
0.0
3,204.2

Key Ratios (YE 31 Dec)

2014

2015

2016F

2017F

2018F

Revenue growth (%)

EBITDA growth (%)
Pretax margins (%)
Net profit margins (%)
Interest cover (x)
Effective tax rate (%)
Net dividend payout (%)
Debtors turnover (days)
Stock turnover (days)
Creditors turnover (days)

-1.2
-13.2
18.5
14.4
na
25.2
32.5
35
6
116

2.0
2.5
18.2
15.0
na
18.8
33.5
54
7
152

8.5
-0.2
17.2
14.2
na
18.0
34.3
54
7
152

8.6
10.9
17.5
14.6
na
18.0
33.0
54
7
152

10.1
11.9
17.8
14.8
na
18.0
36.8
54
7
152

Revenue
EBITDA
Depreciation
Operating income (EBIT)
Other income & associates
Net interest
Exceptional items
Pretax profit
Taxation
Minorities/pref dividends
Net profit
Core net profit
Balance Sheet (RMmil, YE 31 Dec)
Fixed assets
Intangible assets
Other long-term assets
Total non-current assets
Cash & equivalent
Stock
Trade debtors
Other current assets
Total current assets
Trade creditors
Short-term borrowings
Other current liabilities
Total current liabilities
Long-term borrowings
Other long-term liabilities
Total long-term liabilities
Shareholders' funds
Minority interests
BV/share (RM)
Cash Flow (RMmil, YE 31 Dec)
Pretax profit
Depreciation
Net change in working capital
Others
Cash flow from operations
Capital expenditure
Net investments & sale of fixed assets
Others
Cash flow from investing
Debt raised/(repaid)
Equity raised/(repaid)
Dividends paid
Others
Cash flow from financing
Net cash flow
Net cash/(debt) b/f
Forex
Net cash/(debt) c/f

Source: Company, AmInvestment Bank estimates

AmInvestment Bank Bhd

Genting Malaysia

Published by
AmInvestment Bank Bhd (23742-V)
(A member of the AmBank Group)
15th Floor Bangunan AmBank Group
55 Jalan Raja Chulan
50200 Kuala Lumpur
Tel: ( 0 3 ) 2 0 7 0 - 2 4 4 4 ( r e s e a r c h )
Fax: (03)2078-3162

8 March 2016

The information and opinions in this report were prepared by AmInvestment Bank Bhd. The investments discussed or recommended in
this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or
a solicitation to buy any securities. The directors and employees of AmInvestment Bank Bhd may from time to time have a position in or
with the securities mentioned herein. Members of the AmBank Group and their affiliates may provide services to any company and
affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that
we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and
reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for
any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this
date and are subject to change without notice.

Printed by
AmInvestment Bank Bhd (23742-V)
(A member of the AmBank Group)
15th Floor Bangunan AmBank Group
55 Jalan Raja Chulan
50200 Kuala Lumpur
Tel: ( 0 3 ) 2 0 7 0 - 2 4 4 4 ( r e s e a r c h )
Fax: (03)2078-3162

For AmInvestment Bank Bhd

Benny Chew
SR VP Equity Research

AmInvestment Bank Bhd