AIO Finance Analysis

Genting International’s (GIL) 4Q results were below expectations with annualised net loss of S$381m coming in 5% below our full-year estimate and 7% below consensus. Core net profits were a more drastic 44% lower than our numbers. Unsurprisingly, there were no dividends declared.

Hurt by UK slowdown. GIL chalked a 12% topline decline in 4Q largely due to the poorer showing at its UK gaming division, which continued to suffer from lower headcount and drop from the effects of the smoking ban as well as economic impact with the greater impact coming from its provincial casinos.

Profitability hit by higher cost. The gaming tax structure that came into effect in Apr-07 had a net effect P&L of over £6m in FY07. This impacted GIL’s margins on top of the additional costs relating to start-ups of two casinos and renovations for inclusion of smoking terraces.

Unexciting near term prospects. The Sentosa IR project remains on track to meet its soft opening in 1Q2010. We are positive on the project outlook although start up and grand opening costs including depreciation will more than likely bring about a loss in 2010.

Downgrading to NEUTRAL. Given the weaker UK outlook and higher interest expense, we slash forecasts substantially for FY08 (-95%) and now estimate a loss for FY09. We introduce our FY2010 forecasts, which include first-year losses for the Sentosa IR. As a result, our end-CY08 sum-of-parts RNAV target price is lowered to S$0.73 from S$0.86. There appears to be little near term catalysts for GIL and this underpins our recommendation downgrade from Outperform. The stock remains a solid play into Singapore’s future tourism and gaming potential.
Time to short?

Source: CIMP