· Core net profit 27% of our FY forecast: Resorts World reported 1Q09 core net profit of M$306MM, up 3% Y/Y but down 22% Q/Q. 1Q09 core net profit also represents 27% of our full year forecast of M$1B and 24% of consensus earnings of M$1.25B. We view the results as in line as earnings in subsequent quarters may be impacted by higher promotional costs, especially leading up to the opening of the Singapore casinos. Note that the company also recognized an impairment loss of M$30.4MM during the quarter for its investment in Star Cruises.
· Relatively strong revenue numbers, but margins lower due to promotional activity: Revenue for 1Q09 grew 8% Y/Y. Hotel occupancy rates were up to 87% in 1Q09 vs. 86% in 1Q08 while average room rates grew 8% (increasing from M$65 to M$70). Visitor arrivals also held up pretty well, declining only 2% in 1Q09 to 4.6MM visitors from 4.7MM visitors in 1Q08 despite weaker economic conditions. On the VIP business front, the company managed to maintain its VIP contribution to casino revenue at 30% despite the slightly poorer luck factor. Note that the company has yet to see significant impact from the swine flu. Margins, however, were impacted due to the higher promotional activity.
· Reiterate our OW, Dec-09 PT of M$3.20. We believe that any expected short-term slowdown in business environment due to the economic crisis as well as health scare has already been factored into our earnings estimates. We are already forecasting a 22% fall in casino revenues for FY09E vs the fall of 15% during the Asian Financial Crisis. Our PT of M$3.20 also attributes a 40% discount to its cash pile and 11% COE for its Malaysian business. The company’s foreign shareholding stands at 31% as at March 2009, a slight decline from 33% as at end last year.
· Please see inside for key takeaways from the J.P. Morgan Live conference call with Resorts World.
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