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.