Genting Malaysia Berhad (AR 2018)

Corporate Profile

•  Genting Malaysia owns and operates major resort properties including:
• Resorts World Genting (“RWG”) in Malaysia (RWG Malaysia has 10500 rooms and its occupancy rate is 97% in 2018 [2017: 95%])
• Resorts World Casino New York City (“RWNYC”) in the United States (the first and only video gaming machine facility in New York City, RWNYC offers the ultimate gaming and entertainment experience, with electronic gaming machines, shows, events and culinary delights. Additionally, RWNYC embarked on an expansion project in July 2017 to add new facilities and attractions to its portfolio, such as a 400-room hotel, additional gaming space, F&B outlets, retail stores and entertainment facilities. The Group also owns the 527-room Hilton Miami Downtown with 79% occupancy rate which sits on 30 acres of prime freehold waterfront land.)
•  Resorts World Bimini (“RW Bimini”) in the Bahamas (the Group operates RW Bimini, which features a casino, The Hilton at RW Bimini with occupancy rate of 48%, restaurants and bars, various resort amenities as well as the largest yacht and marina complex on the island surrounded by turquoise waters and white-sand beaches)
•  Resorts World Birmingham and over 40 casinos in the UK, making it one of the largest casino operators in the country (Resort World Birmingham is the first integrated leisure complex of its kind in the UK, offering gaming and entertainment facilities, retail and dining outlets and a 178-room four-star hotel with >80% of occupany rate.)
• Crockfords Cairo in Egypt (exclusive casino nestled within the posh surroundings of The Nile Ritz-Carlton Hotel in Cairo, is the Group’s first venture into the region)
• Resorts World Kijal in Terengganu (Hotel occupancy rate 34%)
• Resorts World Langkawi on Langkawi island (Hotel occupancy rate 64%)
• In December 2013, the Group embarked on a 10-year master plan to reinvigorate and transform RWG under the Genting Integrated Tourism Plan (“GITP”) that includes: 
• 1st: additional food and beverage offerings, and entertainment and retail areas (achieved)
  
•  First World Hotel Tower 3
• Awana SkyWay cable car system
• Theme Park Hotel 
• Crockfords Hotel 
• SkyAvenue entertainment complex 
• Newly refurbished First World Plaza 
• 2nd:  New indoor theme park (achieved)
• New Skytropolis Funland indoor theme park 
• 3rd: Rebuilding of the outdoor theme park as a 20th Century Fox World theme park (ceased due to fox refuse to come in) 

Financial Highlights

• Earnings of Genm is relatively stable (however its growth is kind of flat)
• Gross profit margin is more than 20% while net profit margin is more than 10% (consider pretty decent)
• Net profit margin and ROE in 2016 was higher due to one off gain of RM 1,273 million on disposal of Genting Hong Kong Limited. 
• Balance sheet remain strong where the gearing ratio of the company is merely 9%.
• Genm has strong operating cash flow as proven from year 2014 - 2018.
• Main reason for the loss in 2018 is due to the recognition of an impairment loss amounting RM 1,834 million due to the uncertainties surrounding the reaffirmation of the Tribe’s land in trust status which is needed for the Tribe to proceed with the development of a destination resort casino (according to the management, the impairment loss can be reversed if the Tribe's land rights are secured and the promissory notes are assessed to be recoverable)
• If exclude the impairment loss and reversal of impairment loss, Genm recorded a profit of RM 1,856 million which is the highest since 2014. 
• Dividend payout ratio used to be approximately 30% however since 2016, Genm started to give out special dividend which increase its dividend payout ratio to 80% due to its stronger operating cash flow which generated over RM 2,000 million (hopefully the management will keep this dividend payout ratio)

• Approximately 68% of the income from Leisure & Hospitality are generated from Malaysia, 18% from UK & Egypt while 14% from US and Bahamas
• Leisure & Hospitality business in malaysia enjoy the highest EBITDA margin which is 31% as compared to UK & Egypt of 12% and US & Bahamas of 22%
• Revenue from Resort World Genting increased by 13% while business from UK, Egypt, US and Bahamas decreased. 

• Gaming remain as Genm main source of income generator with approximately 80% of its revenue. 

Strength

• The only casino in Malaysia with a strong brand name. 
• Strong balance sheet with room to take up more borrowings for expansion. 

• Number of visitors that patron Genting remain stable and grow exponentially starting 2016 (which is in line with their GITP) with 10% increase from 2017 to 2018. 
• Stable earnings (where earning will not fluctuate). 
• Business might be better during economic recession/slowdown as people tend to travel domestically which is beneficial to Genting. 
• Gambler tend to gamble more during economic recession/slowdown
• Resort World New York City (RWNYC) had committed to an expansion plan of USD400m and is slated to be open in phases starting by end of 2019 (However, significant earnings contribution should only flow earliest in 2021)

Weakness

• Additional impairment cost due to the amount invested in Fox Century theme park now ceased.
• Delay of opening of outdoor theme park due to the court case (however this can be a catalyst for Genm's share price to move higher if Genm will win the court case or bring in a new theme park). 
• Margin being compressed due to increase in gaming tax from 25% to 35% (Genm is now trying to mitigate part of its tax rate hike by reducing its capital expenditure & optimizing its manpower)
• Earnings for Genm is stable however is quite flat unless the new theme park can be a wow factor to bring in more crowd. 
• Casino in UK is not doing very well (However, UK only contributes 14% of Genm income)
• Lack of info on the tax incentive under GITP 

Valuation @ RM 3.25

• I have made adjustments on 2018 Q3 and Q4 result as the EPS was affected by the RM 1,834 million of impairment loss (Q3) as well as reversal of additional tax expense and utilization of tax incentive (Q4). 
• After the adjustment, at RM 3.25 a share, PE of Genm is only 13.5 (EPS: 24.3 sen) which is fairly below its usual PE of 17. 
• A fair PE of Genm would be around 15 - 17, therefore, at the PE of 17, Genm should be priced at RM 4.1. 
• However, due to additional 10% of income tax increment, let's discount it EPS for 2019 by 10% which is  around 21.8 sen (this 10 % discount is including its non gaming income to fully account the tax hike effect). At PE of 17, Genm should worth at least RM 3.70. 
• If Genm would continue its 80% dividend payout ratio in 2019, at RM 3.25 a share, its dividend yield for 2019 could be 5.2% assuming a dividend payout of 17sen. 
• There is also a potential of reversal of the RM 1,800 million of impairment which could boost its earnings. 

Technical Analysis

• Genm breakout from its downtrend of after forming doji for 3 continuous day. A break above RM 3.3 would be a sign for trend reversal.