Genting 3QFY08 : Further impairments in UK operations

December 10, 2008 at 2:59 am Leave a comment

• Improved revenue.
Genting posted 3Q08 revenue of RM2.36bn (+6.5% y-o-y, +9.7% q-o-q). It’s YTD FY08 revenue of RM6.69bn was 7.3% higher than the revenue recorded in the corresponding period last year. YTD revenue is currently at 73% of our projected FY08 revenue. The improved revenue was achieved as the group managed to record higher revenue from all its divisions with the exception of the Power Division. The power division was affected by lower generation of electricity in Meizhou Wan power plant in China due to the high cost of coal supply.
• But bottomline came in lower
The group reported lower yoy PBT and net profits, which came in at RM220m (-39.9% y-o-y, -71.5% q-o-q) and RM68m (-75.4% y-o-y, -87.6% q-o-q) respectively. YTD net profit comes in at RM1.28bn, which is 28.7% lower than the net profit recorded in the corresponding period last year. The lower PBT was due to lower one-off gains from dilution of the Company’s shareholdings in Resorts World Bhd and Genting International Plc. Apart from that the group had recorded a RM337.1m gain on disposal of investment in 3Q07. For the current quarter, the Group registered another impairment loss on its UK gaming operations (Stanley Leisure) to the tune of RM396.3mn, which swung net profits into the red. Just to re-cap, its indirect subsidiary
Genting International had in September 2006 made a £613bn takeover of Stanley Leisure (now renamed Genting Stanley), which was to have propelled the Group to the international gaming arena. Since then however, Genting has had to make a cumulative RM1.2bn in impairment
charges for a variety of reasons (RM937.8mn in 3Q07 for the impairment loss on goodwill, and now the RM396.3mn). Operationally, conditions have not been rosy, with losses coming in as a result of lower revenue, write-offs due to closure of casinos, bad debts and higher gaming duties
following the change in gaming duty rates in April 2007. • Downward revision of target price, BUY call remains While we continue to favour the long term prospects of the Group, we are
imputing a higher 30% discount to the sum-of-parts valuation given the impending near-term challenges that the Group will have to grapple with, to derive a new TP of RM6.10

Higher revenue from almost all divisions
The group recorded increased revenue from all divisions except for the Power Division. The higher revenue from Genting Highlands Resort was attributable to its better underlying performance. This was mainly from higher volume of business due to increased visitor arrivals. However, the UK casino operations continue to record lower revenue because of lower volume of business and higher drops.
The plantation and Oil & Gas divisions recorded higher revenue due to the higher CPO and higher average oil prices contributed to the higher revenue from the Oil & Gas division. The Plantation Division also benefited from the higher fresh fruit bunch (FFB) production.
However, the Power Division recorded lower revenue due to lower generation of electricity by its power plant in Meizhou Wan, China. Generation of power was reduced due to high cost of coal supply, which could not be recovered fully from its customers.

Hurdles going forward
The uncertainty of the current economy and inflationary pressures might have an adverse impact on consumer sentiments and spending and put pressure on the group’s revenue. Apart from this, the general economic outlook in the UK continues to be poor, and could prolong the lacklustre performance in that region.
Though margins for the power sector in Meizhou is expected to improve as commodity prices soften, this could be offset by lower than expected tariff increases and reduced demand for electricity due to the slowing economy in China.

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