GEN Malaysia profit to grow despite U.K. gloom: analyst
Casino operator Genting Malaysia Bhd is preparing for a busy year with new facilities due to open in the second half of 2016, said a note from Affin Hwang Investment Bank Bhd. The investment bank expects the casino firm’s earnings to grow this year despite the “weakness in the U.K. operations”.
“We still expect Genting Malaysia to show earnings growth in 2016 on the back of robust domestic gaming volume growth, but weakness in the U.K. operations and pre-opening expenses related to Genting Integrated Tourism Plan are mitigating factors,” said analyst Lim Tee Yang in a note on Thursday, distributed by Daiwa Securities Co Ltd.
Genting Malaysia runs Resorts World Genting (pictured), Malaysia’s only casino resort, and operates casinos in the United States, the Bahamas and the United Kingdom.
The casino operator announced in 2013 that it would spend MYR5 billion (US$1.14 billion) over 10 years to revamp Resorts World Genting, under what it described as the Genting Integrated Tourism Plan.
“Thus far, the 1,300-room 3-star hotel is ready. For the second half of 2016, we understand that the new cable car system, Sky Avenue and Sky Plaza shopping mall, and a multi-storey car park will be ready,” said Mr Lim.
“The 20th Century Fox World theme park will, however, likely see a 2017 opening,” he added. The theme park is to feature 25 movie-inspired rides.
A note from CIMB Securities Ltd in October – quoting Genting Malaysia – suggested that the delay was partially related with an undergoing “review of the theme park design, budget costing, equipment sourcing and ticket pricing”.
Domestic market resilience
In Thursday’s note, Mr Lim said that despite the gloom in the United Kingdom, “the strong performance of its [Genting Malaysia’s] domestic operations which account for circa 80 percent of group earnings will underpin 2016 estimate’s of 4.1 percent earnings growth”.
“Visitor arrivals have remained robust in 2015 despite work done for the Genting Integrated Tourism Plan and we expect visitor arrivals to grow in 2016 in anticipation of the new facilities due for opening in 2016,” said the Affin Hwang analyst. “We note that Genting Malaysia will incur pre-opening expenses and thus cap earnings growth,” he added.
Genting Malaysia was one of only two major listed casino operators in Asia to record annual share price increases in 2015. Its stocks – listed on Bursa Malaysia – were worth MYR4.38 at the end of 2015, up by 8 percent in annual terms, show data compiled by GGRAsia from investment research firm Morningstar Inc.
The casino operator in November posted a net profit of MYR326.30 million for the third quarter of 2015, up by 22.6 percent from the prior-year period. The firm reported group wide revenue of MYR2.03 billion for the three months to September 30, down nearly 9 percent from a year earlier.
The Malaysia business’s revenue grew by 9 percent year-on-year in the third quarter, but in the U.K. the group’s revenue decreased by 60 percent.
Affin Hwang’s Mr Lim said the casino firm’s management expected the challenging operating environment at its U.K. operations to continue going forward. Genting Malaysia opened on October 21 the Resorts World Birmingham in the English Midlands.
“The U.K. operations typically contribute circa 10 percent of group earnings. However, the U.K. operations saw two consecutive quarters of losses due to sharp declines in VIP volumes, partly due to a shortage of VIP customers with China’s crackdown on corruption,” said the analyst.
He added: “In mitigation, management is seeking to attract the premium mass market but these efforts may still be insufficient to offset the steep decline in VIP volumes (third quarter of 2015: -circa 90 percent year-on-year).”
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