GGRAsia – GEN Malaysia 2Q profit up, theme park opening delayed

GEN Malaysia 2Q profit up, theme park opening delayed

Aug 30, 2019 Newsdesk Latest News, Rest of Asia, Top of the deck

Casino operator Genting Malaysia Bhd says its second-quarter net profit rose 5.3 percent from the prior-year period, on revenue that increased 7.4 percent in year-on-year terms. Such profit for the reporting period was nearly MYR416.5 million (US$98.7 million), with revenue just above MYR2.60 billion, the company told Bursa Malaysia on Thursday.

Group-wide adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) registered a marginal improvement from a year ago, to MYR711.5 million in the three months to June 30.

The company’s board declared an interim, single-tier dividend of MYR0.06 per ordinary share, payable on October 11.

Genting Malaysia operates a casino resort complex – Resorts World Genting (pictured) – outside the Malaysian capital Kuala Lumpur, as well as properties in the United States and the Bahamas; and in the United Kingdom and Egypt.

The company said in a separate press release filed with the stock exchange on Thursday that its Malaysian leisure and hospitality business registered a 10 percent growth in revenue to nearly MYR1.76 billion, while adjusted EBITDA in that segment “remained flat” at MYR540.0 million.

“In the period, Resorts World Genting reported overall decline in volume of business in the gaming segment, primarily due to lower incentives offered to customers in line with the group’s cost rationalisation initiatives,” said Genting Malaysia.

It added: “However, the group’s earnings were aided by improved hold percentage in the mid to premium players segment.”

Brokerage Nomura analysts Tushar Mohata and Rahul Dohare stated in a Thursday memo that Genting Malaysia’s second quarter results “were driven by all geographies”.

But they added: “Lower incentives to players to protect margins imply that we have not yet fully seen the end of the declining volume cycle, with VIP volumes down 17 percent year-on-year. Better hold percentage, however, led to casino revenues rising 10 percent year-on-year in second quarter.”

Analyst Samuel Yin Shao Yang of Maybank IB Research said Genting Malaysia second-quarter results and dividend were a “positive surprise”.

Mr Yin said in a Friday memo that Genting Malaysia’s second-quarter results showed that the company had been successful “in managing the impact of a 10-percentage points casino duty rate hike and its corporate tax rate bill”.

Theme park guidance

According to the two brokerages, Genting Malaysia’s management told investment analysts that the new theme park at Resorts World Genting was now scheduled to open in the third quarter 2020.

Analysts’ notes had previously flagged the possibility of an early 2020 opening for the outdoor theme park, after Genting Malaysia announced in July that it had reached a settlement regarding the US$1-billion lawsuit versus several entities of the Fox entertainment brand and the Walt Disney Co.

Nomura analysts said in their Thursday note: “On the theme park, management said that a majority of the structures of the outdoor theme park is ready and Genting Malaysia has Fox’s approval to use several of the intellectual property [rights].”

The institution added: “Despite that, management is guiding for it to open only by third quarter 2020, which might be later than Street [the market's] expectations, and additional capex guidance for the same was also not disclosed.”

Nomura’s memo said that Genting Malaysia would start to recruit staff “shortly” to test the rides at the theme park and later to operate the rides. “In total, it is looking to gradually recruit 1,000 employees for the theme park,” it further stated.

Maybank’s Mr Yin said his institution maintained its forecast “that incorporated a later first-quarter 2021 opening” for the new theme park.

In Friday’s note, Maybank said additionally that the acquisition of a 49 percent stake in loss-making Empire Resorts Inc, an operator of casinos in the United States, “will weigh on long-term earnings”. Kien Huat Realty III Ltd – the family trust of Lim Kok Thay, a businessman who is the controlling shareholder of the Genting group – will hold the remaining 51 percent in Empire Resorts.

The Nomura team said it was expected that the Empire Resorts deal would be completed by the end of 2019. “We believe Genting Malaysia’s earnings will therefore be impacted from 2020,” wrote Mr Mohata and Mr Dohare.

“[Genting Malaysia’s] Management provided no further update on the future equity injection required in Empire once the acquisition is complete and there was no clarity on its action plan to try and achieve break-even on Empire’s operations, except for an indication that financing cost will come down once debt is refinanced,” they added.