KUALA LUMPUR (Aug 27): Analysts were not surprised with Genting Bhd’s (Genting) less than stellar performance for its second quarter for the financial year 2015 (2QFY15), which was announced on Bursa yesterday, saying that they expected the group’s Singapore operations earnings contraction.
In his note, CIMB analyst Marcus Chan expects that Genting Malaysia’s (GM) earnings before interest, taxes, depreciation and amortization (EBITDA) to exceed Genting Singapore’s (GenS) Ebitda by financial year 2016 (FY16) and exceed it in the following year.
“For first half of 2015 (1H15), 39% of Genting’s EBITDA came from GM, 47% from GenS and 5% from Genting Plantations (GenP).
“In terms of gaming contribution, we had previously expected that GM’s EBITDA contribution will equal GenS by 2018. Given the current bleak outlook for GenS, we now expect GM’s EBITDA to equal GenS in FY16, and to exceed GenS from FY17 onwards,” Chan said.
Chan maintained CIMB’s recommendation to “hold” with a lower target price at RM7.20 from RM8.70 but advised to switch to GM for exposure to the gaming sector.
“We lower our target price to RM7.20 (after updating for our new target prices for GenS and GenP), based on a wider 30% holding company discount (previously 20%) to our revalued net asset valuation (RNAV) estimate to account for the bleak outlook for GenS and GenP and a slight delay in the 20th Century Fox theme park launch.
“In the near-term, we expect Genting’s share price to continue tracking the performance of GenS; however, this should change as GM rises in earnings prominence,” he said.
In his note, TA Securities analyst Tan Kam Meng said Genting’s first half financial year 2015 (1HFY15) accounted for 60% of their full year forecast and 55% of consensus estimates, but it was within expectation as they expected the lower profit from GenS.
“Genting’s 1H15 adjusted EBITDA declined 9.6% year-on-year (y-o-y) to RM3.1 billion mainly due to lacklustre performance of its Singapore, Malaysia and UK operations. This was partially mitigated by stronger earnings from Resorts World New York City and Resorts World Bahama.
“Excluding a tax refund of S$102.7 million and other exceptional items, GenS 1HFY15 adjusted EBITDA contracted 40.9% y-o-y to S$421.8 million, driven mainly by the drop in the VIP premium gaming business and rolling win percentage.
“The gaming revenue contracted by 27.2% y-o-y to S$923.2 million with rolling chip volume declined 11% quarter-on-quarter and the win rate decline to 2.1%,” said Tan who maintained a “buy” recommendation on Genting with an increased target price of RM9.92 from RM6.64.
In the note, Tan also raised their financial years 2015–2017 earnings projections higher by 3.8%–6.4% after fine-tuning their MYR/SGD assumptions to 2.75–2.90 (from 2.50–2.75 previously) for FY15–17.
“The weakening ringgit is expected to have neutral impact to the holding company as all its foreign debts are undertaken by its operating subsidiaries, which have consistent income streams in foreign currencies.
“In our opinion, Genting Malaysia will stand to benefit as weaker ringgit will boost foreign visitation to Resorts World Genting. Also, there will be significant transaction and translation gains from Genting’s US operations,” Tan said.