Resorts World - BUY - 28 Aug 2008

Resorts World - Solid 1H08 (Results Note)



Price: RM2.53

Target Price: RM4.38

Recommendation: BUY



· 1H08 revenue of RM2.3b was in line while core net profit of RM662.5m was 47.5% and 50.9% of our forecast and consensus respectively. We were pleasantly surprised by the strong 1H08 which was typically weaker on seasonality. The robust 1H08 was mainly driven by better luck factor and higher patronage.

· QoQ, revenue rose 13.6% while EBITDA growth was even higher at 31.0% with 2Q08 EBITDA margin expanding to 42.5% from 40.2% in 1Q08 on the back of higher luck factor in the VIP segment and higher visitorship.

· YoY, 1H08 revenue and EBITDA jumped 11.3% and 18.6% respectively, underpinned by lower payout for VIP and higher business volume. Pre-tax surged 25.2% to RM906.7m owning to better EBITDA margin (1H08:41.4% vs 1H07:38.9%), increased net interest income (+89.1%) and a RM19.1m gain on disposal of long term investments.

· Group announced an interim gross dividend of 3.0sen vs the previous 2.88sen. Payout is a tad lower as group conserves cash for future acquisition or expansion in the regional gaming market. Current cash hoard of RM4.2b which is still growing coupled with depressed share price should increase Resorts' appeal as a privatisation target by parent Genting group as highlighted in our previous reports.

· Resorts' share price had been unduly punished amidst concern of a potential gaming tax hike. While a 1% tax hike would have a c.2% impact to Resort's bottom line, it only increases government's coffers by merely RM40m which is very marginal. We therefore opine that the hike of gaming tax if any will be minimal taking into consideration that Resorts is a top tourist draw and their competitiveness should not be compromised especially with heightening competition across the region.

· BUY though target price lowered after trimming our FY08F and FY09F by 3.0% and 4.2% respectively taking into account higher costs all-round between 1%-4% including staff and energy costs. Resorts remains our top buy as current valuation is most attractive at FY08 PER of 10.9x versus regional average of 21x. Valuation is even more compelling at 7.8x after netting off cash per share of RM0.72. Reiterate BUY with target price revised to RM4.38 based on sum-of parts. Share price should re-rate strongly once the overhanging tax hike concern is removed. More details post tele-conference today.