PP 7767/09/2010(025354)

Malaysia Corporate Highlights

RHB Research
Institute Sdn Bhd
A member of the
RHB Banking Group
Company No: 233327 -M

R e su l ts / B ri e f i ng N o t e
MARKET DATELINE

1 March 2010

Genting Malaysia Share Price

Fair Value
:
:
RM2.72
RM2.90
Recom : Market Perform
Beating Expectations (Maintained)

Table 1 : Investment Statistics (GENM; Code: 4715) Bloomberg: GENM MK

Net Net
FYE Turnover Profit ^ EPS ^ Growth PER P/NTA C. EPS EV/EBITDA P/CF Gearing GDY
Dec (RMm) (RMm) (sen) (%) (x) (x) (sen) (x) (x) (%) (%)
2009 4,991.8 1,323.7 23.2 2.4 11.7 1.5 - 5.3 9.4 cash 2.7
2010f 4,825.4 1,294.3 21.0 (9.4) 13.0 1.6 20.0 5.4 10.2 cash 2.5
2011f 5,018.2 1,382.1 22.4 6.8 12.1 1.4 22.0 4.6 9.6 cash 2.7
2012f 5,219.0 1,452.9 23.6 5.1 11.5 1.3 3.8 9.2 cash 2.9
Main Market Listing / Non-Trustee Stock / Non-Syariah-Approved Stock By The SC * Consensus Based On IBES
E i
^ Excluding EI

♦ Above expectations. Genting Malaysia’s (GM) FY09 core net profit came in RHBRI Vs. Consensus
above expectations, making up 110-111% of our and consensus forecasts. In Above
In Line
FY09, GM recorded total EI loss of RM59.5m, coming from impairment losses
Below
of RM81.3m and gain on sale of investments of RM21.8m. We believe the
main difference came from higher-than-expected investment income from Issued Capital (m shares) 5,901.5
gain on sale of investments. GM declared a final gross DPS of 4.3 sen (less Market Cap(RMm) 16,052.9
25% tax), bringing total gross DPS to 7.3 sen, or a net payout of 23.6% and Daily Trading Vol (m shs) 11.2
net yield of 2%, which was slightly above our expectations which were based 52wk Price Range (RM) 1.84 – 3.02
on net payout of 22.6%. Major Shareholders: (%)
Genting Bhd 48.3
♦ Weaker luck factor in premium business. Total revenue grew 2.1% yoy Free float 51.7
mainly on the back of stronger contributions from the leisure and hospitality
division (+1.4% yoy) coming from stronger volumes despite weaker luck
FYE Dec FY10 FY11 FY12
factor in the premium player business and the gain on sale of investment of EPS chg (%) (3.6) (5.3) -
RM21.8m (included in others). Core net profit however, fell by 0.9% yoy in Var to Cons (%) 5.0 1.9 -
FY09 due mainly to: lower EBIT margins of 1.5%-pt yoy (and -3.1%-pt qoq
in 4Q09 from 4Q08) in the leisure and hospitality division, due to weaker PE Band Chart
luck factor in the premium player segment; and lower net interest income
(-31.5% yoy) as interest rates fell.
PER = 18x
PER = 14x
♦ Key briefing takeaways: (1) visitor arrivals are up 1.5% yoy in FY09; (2) PER = 10x
luck factor weaker, but in line with theoretical average; and (3) comments
on impact of opening of Singaporean casino

♦ Risks include: 1) a slower-than-expected global and regional economic

recovery, which could affect domestic sentiment and visitor arrivals; 2) lifting Relative Performance To FBM KLCI
of domestic subsidies for food and transportation costs, which would lower
disposable income; and 3) intensifying competition from regional players.

♦ Forecasts are revised downwards slightly by between 3.6-5.3% for FY10-11 FBM KLCI
and introduce our FY12 forecasts, based on a 2% visitor growth assumption,
revenue per visitor growth of 2% and hotel occupancy rate of 90%.
Genting Malaysia
♦ Investment case. Post-earnings revision and after rolling over our DCF
period by one year, adjusting for the latest market value for Genting HK and
updating for GM’s end-FY09 net cash balance, we reduce our SOP-based fair
value to RM2.90 (from RM3.00). We continue to apply a 15% holding Hoe Lee Leng
company discount to GM’s SOP, taking into account the weak investor (603) 92802184
sentiment due to the perceived cannibalisation caused by the Singaporean hoe.lee.leng@rhb.com.my
IR’s, the corporate governance risk and the lack of additional capital
management from its abundant cash hoard. Maintain Market Perform.

Please read important disclosures at the end of this report.

Page 1 of 3
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Table 2 : Earnings Review

FYE Dec (RMm) 4Q08 3Q09 4Q09 % qoq % yoy FY08 FY09 % yoy Comment

Turnover 1324.5 1325.1 1261.8 -4.8 -4.7 4886.7 4991.8 2.1 Gaming revenue expanded by 1.4% yoy in
FY09 (and -4.7% qoq in 4Q09 from 4Q08) on
the back of higher volume of business offset
by weaker luck factor in the premium
segment.
EBITDA 571.2 568.7 514.5 -9.5 -9.9 1968.4 1949.3 -1.0
Depreciation (66.3) (68.9) (67.7) -1.7 2.1 (193.9) (202.5) 4.4
EBIT 504.9 499.8 446.8 -10.6 -11.5 1774.5 1746.8 -1.6 Due to lower margins of 1.5%-pt yoy (and
-3.1%-pt qoq in 4Q09 from 4Q08) in leisure
division, due to weaker luck factor in the
premium player segment.
Exceptionals (780.8) (48.4) 3.1 -106.4 -100.4 (761.7) (59.5) n.m. Includes impairment loss of RM81.3m less
gain on sale of investments RM21.8m
Net interest 31.2 19.2 20.1 4.6 -35.7 113.5 77.8 -31.5 Lower due to lower interest rates, despite
higher net cash at end-4Q09 of RM5.3bn
(versus RM4.55bn at end-08)
Associate 0.1 (0.0) (0.5) 1284.8 -644.0 0.5 (0.4) -178.4

Pretax profit (244.6) 470.6 469.5 -0.2 -291.9 1126.9 1764.6 56.6 Includes EI
Norm Pretax 536.2 519.0 466.4 -10.1 -13.0 1888.6 1824.1 -3.4 Flow through from EBIT and lower net interest
Taxation (143.4) (111.3) (111.2) -0.1 -22.5 (493.0) (441.3) -10.5
Minority interest 0.1 0.1 0.1 2.0 5.1 0.4 0.4 3.7
Net profit (388.0) 359.4 358.4 -0.3 -192.4 634.2 1323.7 108.7
Norm Net 393.0 407.8 355.2 -12.9 -9.6 1395.9 1383.2 -0.9 Flow through from PBT and higher MI
EPS (sen) (6.8) 6.3 6.3 -0.2 -193.2 11.0 23.2 111.3
DPS (sen) 4.0 0.0 4.3 7.0 7.3

EBITDA margin 43.1 42.9 40.8 40.3 39.0

(%)
EBIT margin (%) 38.1 37.7 35.4 36.3 35.0
Pretax margin (%) (18.5) 35.5 37.2 23.1 35.4
Norm Pretax 40.5 39.2 37.0 38.6 36.5
margin (%)
Tax rate (%) (58.6) 23.7 23.7 43.8 25.0 Normalisation of tax rates in FY09

Briefing Notes

♦ Three key takeaways: (1) visitor arrivals are up 1.5% yoy in FY09; (2) luck factor weaker, but in line with
theoretical average; and (3) comments on impact of opening of Singaporean casino.

♦ Visitor arrivals up 1.5% yoy. GM’s 1.4% yoy increase in revenue from the leisure and hospitality division in FY09
was achieved on the back of a 1.5% yoy rise visitor arrivals to 19.5m (from 19.2m in FY08) and improvement in
casino business volumes. However, again, the weaker luck factor in the premium segment affected margins,
resulting in a 1.5%-pt yoy drop in EBIT margins in FY09. We have reduced our visitor forecasts for FY10 to reflect a
larger 4% yoy decline in visitor arrivals (from -2%) and a 2% yoy increase in FY11 (from +3%), while we introduce
our FY12 forecasts with an assumption of a +2% yoy rise in visitor arrivals.

♦ Luck factor weaker, but in line with theoretical average. Normalising the luck factor, GM’s management
estimates that revenue in FY09 would have increased by a higher 10% yoy, while EBITDA would have risen by 14%
yoy instead. We note that the luck factor weakened again in 4Q09, after improving for one quarter in 3Q09, as EBIT
margins for the leisure division fell back to 35.1% in 4Q09 (from 37.2% in 3Q09 and 34.4% in 2Q09). We note,
however, that according to management, although the luck factor in the premium segment in FY09 was weaker
than FY08, it would be considered to be in line with the theoretical average, and that the luck factor in FY08 was
above the theoretical average. What this means, is that EBIT margins for the leisure and hospitality division based
on theoretical luck factor averages should remain at FY09 levels. This is in line with our forecasts for FY10-12, as
we have already projected margins to be 2-3%-pt below FY08 levels.

♦ Impact of RWS opening. When queried about the impact of the opening of Resorts World Singapore’s casino on
Genting Malaysia’s casino business during the Chinese New Year period, management commented that business
continued to be satisfactory, although it did admit to a slight decline in visitor arrivals from Singapore, but that
there was no “discernible cannibalisation of business”. As to strategies to contain any potential cannibalisation of
business, management intends to continue doing more direct marketing and promotional activities thoughout the
year, as well as continue to invest in upgrading works for the hotels, theme park and gaming equipment.
Management intends to spend capex of approximately RM300m in FY10 for these upgrading works, which notably,

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 is a doubling from the RM129.7m spent in FY09. Despite this, GM does not intend to add any more hotel rooms to
its stable, even though occupancy rates are already at 92% in FY09 and 96% in 4Q09, as management intends to
continue to drive room yield rather than volume of rooms sold. This is already being done, as GM has managed to
increase the number of rooms sold to members to 55-56% in FY09 (from 49% in FY08). In our forecasts, we have
assumed occupancy rate remains at 90%, with a 1% increase in RevPar every year in FY10-12.

Table 3 : Underlying Trends

FYE Dec 4Q09 FY08 FY09 Comment

Visitors (‘m)
Total (m) 5.2 19.2 19.5 +1.5% yoy rise in visitors in FY09 and 4%
yoy in 4Q09
Domestic hotel guests 56% 54% 56% +7% yoy
(as % of total)
Foreign hotel guests 44% 46% 44% + 3% yoy
(as % of total)
- Singapore Not given 21% 22%

Visitor Breakdown

Guests 28% Not given 28%

Daytrippers 72% Not given 72%

Casino
Revenue yoy - yoy Increase in business volumes offset slightly by
weaker luck factor in premium segment. If
normalise luck factor, revenue increase is 5% yoy
in FY09
Non-VIP revenue single-digit - single digit yoy
yoy
VIP revenue flat - flat Weaker luck factor

VIP business
% of business 30% 30% 30% Aim to keep VIP % at these levels

Hotels
Guest Arrivals - - 5% yoy
Room nights sold yoy - yoy
No. of available rooms - - 3% yoy
Occupancy (%) 96% 90% 92%
Membership occupancy (%) Not given 49% 55-56%
ARR (RM) Not given 78 75

F&B
Revenue yoy - yoy
Covers Flat - yoy
Average check yoy - yoy

Theme Park
Revenue Gth (%) yoy - yoy
No visitors Not given Not given 2.4m
Ave Price/Ticket (RM) - - yoy Increase in ticket price implemented in mid-08 to
RM34 from RM31

Entertainment
Covers Not given - Not given
Show days Not given - Not given

Source: Company, RHBRI

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Risks

♦ The risks include: 1) a slower-than-expected global and regional economic recovery, which could affect domestic
sentiment and visitor arrivals; 2) lifting of domestic subsidies for food and transportation costs, which would lower
disposable income; and 3) intensifying competition from regional players.

Forecasts

♦ Forecasts revised down slightly for FY10-11, introduce FY12. We revise our forecasts downwards slightly by
between 3.6-5.3% for FY10-11 and introduce our FY12 forecasts, based on a 2% visitor growth assumption,
revenue per visitor growth of 2% and hotel occupancy rate of 90%.

Valuation and Recommendation

♦ Maintain Market Perform. Post-earnings revision and after rolling over our DCF period by one year, adjusting for
the latest market value for Genting HK and updating for GM’s end-FY09 net cash balance (see Table 4), we reduce
our SOP-based fair value to RM2.90 (from RM3.00). We continue to apply a 15% holding company discount to GM’s
SOP valuation to obtain our fair value, taking into account the weak investor sentiment surrounding the stock due
to the perceived cannibalization caused by the Singaporean IR’s, the corporate governance risk and the lack of
additional capital management from its abundant cash hoard. Maintain Market Perform.

Table 4 : Genting Malaysia’s SOP Calculation

RMm Basis
Genting HK 579.8 Market price S$0.18
Gaming 14,844.2 DCF at WACC of 9.9%
Net cash 5,271.6 End-4Q09
Total 20,695.7 TOTAL

No. of shares (m) – fully diluted 6,104.6

SOP/share (RM) 3.39
Discount to SOP (15%) (0.51)

Fair Value 2.88

Source: RHBRI

Table 5. Earnings Forecasts Table 6. Forecast Assumptions

FYE Dec (RMm) FY09a FY10F FY11F FY12F FYE Dec FY10F FY11F FY12F

Turnover 4991.8 4825.4 5018.2 5219.0 No of visitor Gth (%) -4 2 2

Turnover growth (%) 2.1 (2.7) 4.0 4.0 Rev/visitor gth (%) 1 2 2
Hotels occupancy rate (%) 90 90 90
Operating Costs (2974.8) (3037.2) (3134.2) (3260.4)

EBITDA 2016.9 1788.2 1883.9 1958.7

EBITDA margin (%) 40.4 37.2 37.7 37.7

Depreciation (270.1) (259.1) (263.5) (271.0)

Net Interest 77.8 147.9 173.5 200.7
Associates (0.4) 0.0 0.0 0.0
EI (59.5) 0.0 0.0 0.0

Pretax Profit 1764.7 1725.4 1842.4 1936.8

Tax (441.5) (431.3) (460.6) (484.2)
PAT 1323.2 1294.0 1381.8 1452.6
Minorities 0.4 0.3 0.3 0.3
Net Profit 1323.6 1294.3 1382.1 1452.9

Source: Company data, RHBRI estimates

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Stock Ratings

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