GENM Q2 2019

1. Revenue grew by 10.7% while gross profit grew by 7.1%. Gross profit margin and net profit margin remain stable at 25% and 12% respectively. 
2. Other expenses increased by 32.8% as a result of the termination of contracts related to the outdoor theme park at Resorts World Genting of RM138.0 million (impairment).
3. Impairment loss reduced by RM12 millions. 
4. Finance cost increased by 72.6% as the company's bank borrowings increased. RM126 million accounts for 16% of its profit before tax. According to management, the increase of finance cost is due to lower qualifying assets eligible for interest capitalisation during the period, upon completion of certain projects under GITP
5. Tax rate for 6 months cumulative was 13% in 2019 versus 16% in 2018. Tax rate were actually lower even after the tax rate hike. (I think there are still some tax incentive to cushion it)
6. Profit after tax were lower by 8.8% which we will explain later. 

1. Revenue from Malaysia increased by 15% however it EBITDA only increased by 2% due to higher casino duty however it is offset by higher revenue and lower payroll and related expenses as a result of reduction in the number of employees.
2. Revenue from UK & Egypt dropped by 1% however its EBITDA increased by 43% due to impact of adopting MFRS 16 and was partially offset by lower debts recovery in 1H 2019.
3. Revenue from US and Bahamas increased by 8% while its EBITDA increased by 18% due to the strengthening of USD against RM. Excluding this impact, revenue would have increased by 3% mainly due to higher volume of business from RWNYC operations.. 
4. Main reason for profit before tax to decrease is due to higher pre-opening expenses of RM112 millions due to provision for termination related costs relating to the outdoor theme park of RM138.0 million,  and lower interest income of RM112 millions due to impairment of the Group’s investment in the promissory notes issued by the Tribe in 2018. 

1. Cash at bank reduced by RM 1,022 million while bank borrowings increased by RM 2 million. Main reason for the cash to reduce was for purchase of PPE amounting RM1579 million. 

1. The theme park is expected to open soon which can mitigate the increase in tax rate hike in malaysia. 
2. Genm will continue to reduce its operating cost by improving efficiency. 
3. First phase of group expansion at RWNYC will open and increase in business in NYC should be able to mitigate or cushion the losses from Empire Resort next year. 

Comments:

1. Genm business is still growing proven by its increased revenue and gross profit (organic growth).
2. Gearing ratio of the company increased from 9% to 15% and its finance cost increased significantly which can post as a risk to the company's ability to distribute special dividend. 
3. The opening of theme park should boost its business and mitigate the losses from Empire Resort however the cash of the company would further deteriorate after acquiring Empire Resort which might affect the company's ability to distribute special dividend.
4. Valuation wise, i think at currect price of RM3.12 its PE is only 13.5 which is still way below its reasonable PE of 18. At PE 18, Genm is worth RM 4.32. 

Ptrans Q2 2019

1. Gross profit improved to 42.48% cumulative quarters in 2019 VS 39.85% in 2018 (well done to the team for controlling the COGS effectively).
2. Revenue increased by 3% however its general and administrative expenses dropped by 0.3% (another thumbs up to the management team for controlling the admin expenses so well).
3. Other operating income was higher by 138% or RM 2.2 million due to higher rental income from rental of construction equipment. 
4. Finance cost is higher this quarter and accounts for 20% of profit before tax as their bank borrowings was higher. Although the company's bank borrowing was higher, however the gearing ratio actually dropped from 64% to 62% which is good. 
5. Profit before tax improved by 23% however profit after tax only improved by 1.8% due as cumulative quarters for 2018, there is a tax income of RM 2.7 million. Nevertheless, the tax rate for the current quarter is only 3.3%.
6. Although the company has higher net profit, but its EPS dropped by 9.7%. This is due to increase in number of shares result from warrant conversion. Number of shares increased by 6.2%.

1. Cash flow from operating is higher at RM 17 million compare to RM 13 million previously. 
2. Cash from used in investing is lower at RM 15 million compare to RM 38 million previously. 
3. From the above calculation, we can conclude that with higher operating cash flow and lower investing activities, PTRANS is able to generate more free cash flow moving forward to pair down its debts as well as used for dividend payout. 

1. Revenue was higher by RM 4 million for its terminal operations however operations from petrol station and buses are slightly lower by 10% and 0.9% respectively. 

1. Q2 usually serves as the strongest quarter for PTRANS as there are more long weekends, public holidays and school holidays. 

1. Terminal Kampar has commenced its terminal operation at the end of 2nd quarter. Meaning we could see its contribution at the end of second quarter of 2019. 

Comments

1. Better efficiency is seen from the company profit and loss account for the cumulative quarters in 2019.
2. Balance sheet becomes stronger as PTRANS has a free cash flow of RM4.6 million for cumulative quarters in 2019. As long as if the company do not immediately start its 3rd terminal project, i believe PTRANS could pair down its debts and further strengthen its balance sheet in a short period. 
3. The only uncertainty now is when the revenue and expenses from terminal kampar kicks in next quarter, will the overall company earnings being lifted or dragged lower? 
4. However according to Affin Hwang report: Terminal Kampar’s ground floor operations — comprising bus services, advertising and promotion as well as rental of four shoplots and eight kiosks — have kicked off with a 90% occupancy rate, while the overall expected take-up rate from prospective tenants for the entire mall stands at 70%.Furthermore, most of the anchor tenants — cineplex, gym, bowling alley and supermarket — have been secured.
5. If Terminal Kampar will generate some good cash flow, then the additional shares from warrant conversion and high gearing ratio would not be an issue. 
6. Assuming if PTRANS have an full year EPS of 2.52 sen, a 35% dividend payout will be 0.89 sen. PTRANS has paid out 0.25 sen in Q1, therefore expecting another 0.64 sen to be paid out in Q3. At current price of RM 0.195, DY is set to be 4.5%
7. Valuation wise, for 2.52 sen of EPS a year, its PE at RM 0.195 is 7.7 which is deemed to be undervalue if Terminal Kampar is lifting its earning. 

Genm acquire 46% of Empire Resorts with RM 540 millions and its Impact on Genm Financial

• Genm is acquiring 46% of Empire Resort for RM 540 millions. 

Financial Highlights for Empire Resort in 2018 & 2019

• According to Bloomberg, Empire Resort losses USD 140 millions (RM 590 millions) in year 2018 which is the highest over the past 4 years. 

• Empire Resort losses USD 36 millions (RM 150 millions) in Q2 2019. Assuming Empire Resort incurred the same losses in Q3 & Q4 2019, that would be a loss of USD144 millions (RM 600 millions). 
• Genm acquire 46%, meaning RM 276 millions of the losses will impact on Genm result. 

Financial Highlights for Genm in 2019

• Genm generates profit after tax of RM 253 millions in Q1 2019. Assuming if Genm consistently generates the same amount over the remaining quarters, profit for 2019 would be RM 1012 millions. 
• However do take note that there is a one off pre opening expenses of RM 210 millions and one off gain on disposal of RM 123 millions in Q1 2019. I do not expect this expenses to appear in Q2 2019, therefore, Q2 2019 result are expected to be better. 
• If exclude the pre opening expenses and one off gain on disposal, Genm profit after tax should be RM 369 millions. Therefore, a full year estimation would be RM 1476 millions.

Impact of Empire Resorts losses on Genm Financials

Scenario 1 (pessimistic) 

• RM 1012 millions - RM 276 millions = RM 736 millions
• RM 736,000,000 / 5,659,071,000 shares = EPS 13 sen for year 2019

Scenario 2 (optimistic)

• RM 1476 millions - RM 276 millions = RM 1200 millions
• RM 1,200,000,000 / 5,659,071,000 shares = EPS 21 sen for year 2019

Valuation

• At RM 3.12 a share, PE of Genm is 14.8 assuming the EPS is 21 sen.
• At RM 3.12 a share, PE of Genm is 24 assuming the EPS is 13 sen.
• A fair PE of Genm should be around 15 - 17. 

Key Things to Ponder

• Will the reopening of theme park in end 2020 or early 2021 cushion the additional losses contributed by Empire Resort?
• Will the voluntary bankruptcy debts restructuring under chapter 11 help Empire Resort to reduce its debts hence reduce its losses? 
• The core value of Genm is that it is the only casino in Malaysia and Genting remain as one of the most popular tourist destination/short get away for Malaysian due to its weather and portrait as an all rounder to entertain family from adults to kids. Has the core value of Genm being broken at this stage? 
• More over, Genm has been consistently generating a positive cash flow from operating amounting RM 1500 millions to RM 2000 millions every year . How massive is the impact of RM 300 millions of losses from Empire resort? RM 300 / RM 1500 = 20%. 
• Share Price of Genm before the news announcement is RM 3.61. RM 3.61 discounted by 20% would be RM 2.88. Therefore, RM 2.90 should serve as a very strong support fundamentally.