Resorts World - BUY - 29 May 2008

Resorts World - 1Q08 within expectations (Results Note)



Price: RM3.20

Target Price: RM4.84

Recommendation: BUY



· 1QFY08 revenue of RM1.1b was in line with our expectations and market's while net profit at RM297.4m was 21.3% of our forecast and 22.3% of street's. Stronger performance was driven mainly by higher visitor arrivals.

· QoQ, 1Q08 revenue and EBITDA declined a seasonal 4.3% and 6.8% respectively which is in line with expectations.

· YoY, 1Q08 revenue grew 2.6% while EBITDA rose 6.4% to RM439.0m owning to strong highlands operation. EBITDA margin rose 14 basis points to 40.2% (1Q07: 38.8%) on improved economies of scale. Excluding exceptionals, pre-tax jumped 45.3% due to: a) non-consolidation of StarCruises' losses after becoming a non-associate following its disposal with a mere 19.6% stake from 33.9% in 3Q07, b) higher highland visitorships; and c) rising interest income (+51.3% yoy) on growing cash pile.

· Cash pile rose to c.RM3.7b post sale of Genting International shares. Undemanding capex for 2008 estimated at RM600-700m for upgrading of facilities and renovation could see cash coffer increase further to RM4.0b, or RM0.67/share by year end. Rising cash hoard increases appeal of Resorts World as a possible privatisation target or earmarked as the group's new vehicle to spearhead regional expansion.

· Highlands' operation expected to remain resilient, underpinned by strong visitor arrivals with locals accounting for circa 85% of total visitor arrivals. While there could be some dampener to consumption in the near term on the back of rising costs, impact if any is likely to be temporary. We continue to maintain a +4% growth in total visitor arrivals. Resorts' resilience is a stark contrast to global casino operators, including Sands, MGM Mirage and Wynn which saw 1Q profit dipping due to the prevailing global economic slowdown, heightened competition and rising operating costs in both Vegas and Macau.

· Maintain forecasts and reiterate BUY with an unchanged target price of RM4.84. Trading at FY08 PER of only 13.4x, a huge 60% discount to regional peers' PER of 33x, Resorts is truly one of the most undervalued gaming stocks.







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