Resorts World - Mainly in line

Resorts World - Mainly in line (Results Note)
Price: RM3.80
Target Price: RM4.84
Recommendation: BUY


· FY07 revenue of RM4.4b was in line with our expectation and street's. Core net profit at RM1203.4m was however marginally lower at 5.5% and 8.9% below our expectation and street's consensus respectively, due to marginally higher effective taxes and finance cost.

· QoQ revenue was up 2.3% on higher visitor arrivals while EBITDA margin dipped 1 percentage point to 41.3% suggesting perhaps higher promotional expenses and/or lower luck factor. Pre-tax was lower by 42.9% as exceptional including StarCruises' disposal and dilution (RM354.8m) was recognised in the preceding quarter. Normalised, pretax was 6.7% higher sequentially.

· YoY, FY07 revenue and EBITDA recorded healthy double digit growth of 14.3% and 12.1% respectively. Stronger headline numbers were driven by higher visitorships, growth in both grind and VIP markets and higher interest income (+173.1%) on rising cash balance to RM3b.

· Final dividend of 3.6 sen bringing full year dividend to 6.48 sen (2006 : 5.4sen). Payout of 24% is a tad disappointing given expected cash hoard of RM3.5b post sale of Genting International to be completed in the near future. Rising cash hoard should spur speculation of further acquisitions or the latest being the privatisation of Resorts World which we do not discount.

· Prospect remain robust for FY08 underpinned by robust private consumption growth augmented by 9MP spending, growing patronage with the extension of VMY, active room yield management and aggressive marketing efforts to attract the right customers. We are confident on the growth of Resorts' visitor patronage and maintain our net profit forecast of RM1.4b and RM1.5b for FY08 and FY09 respectively.

· BUY maintained with an unchanged sum of parts valuation at RM4.84. Resorts is trading at one year forward PER of only 15.9x, a huge 39% discount to the regional peer's forward PER of 26x. Expansion into the regional gaming market could be a strong rerating catalyst for share price.









KENANGA INVESTMENT BANK BERHAD (15678-H)

Research Department