Genting Malaysia: 2Q09 results - business remains very resilient

1H09 core NP 63% of our FY forecast: Genting Malaysia reported 2Q09 net profit of M$330MM, up 8% Q/Q but down 14% Y/Y. 1H09 core net profit of M$636MM represents 63% of our full year forecast of M$1008MM and 51% of consensus estimates of M$1239MM.

· Business as usual despite swine flu, economic slowdown: Leisure turnover down 5% Y/Y in 2Q09 due mainly to weaker luck factor in the VIP business (normalizing luck factor translates to +13% rev). Business volumes in both VIP and grind market, however, exhibited double digit growth. Visitor arrivals in the 1H09 came in at 9.5MM vs. 9.52MM in 1H08. Hotel occupancy rate in 2Q09 was high at 90% and 88% in 1H09. F&B revenue also up 7% Y/Y in 2Q09 and 8% Y/Y for 1H09 due to an increase in covers and average spending. Theme park revenues, however, declined slightly, despite the 8% ticket price increase effective mid-2008, as fewer tickets were sold.

· Dividends; fair value gain from Star Cruises' share price rise: The company declared a net interim dividend of 2.25 sen, translating to a payout ratio of 21%. A fair value gain of M$311.2MM was recognized directly in equity as Star Cruises' share price closed higher at US$0.14 per share as at end June 2009 from US$0.08 per share as at March 2009.

· Maintain OW; June 2010 PT of M$3.50. We raise our FY09E net profit forecast by 13% to factor in the resiliency of the business despite the swine flu and economic downturn. Management is not expecting to increase its marketing budget significantly in 2H09 but will focus on more direct rather than general marketing strategies leading up to the opening of RWS. Cannibalization from the opening of RWS, if any, will likely be limited to the VIP market given Genting Highlands' high dependence on local day trippers. The VIP segment only contributes about 25-30% of the Malaysian casino's revenue. Local day trippers made up 72% of total visitor arrivals while of the remaining 28% hotels guests, 57% were Malaysians while only 21% were Singaporeans and 6% Chinese.