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Regional Equity Strategy Q4 2007
Stock Profile: Resorts World
BUY RM3.78 KLCI : 1,278.34
Price Target : 12-Month RM 4.70
Potential Catalyst: Spearhead a new gaming venture,
stronger than expected domestic consumption, higher
dividend payout
ANALYST
Lee Len Chong +603-2711 2222
leelen@hwangdbsvickers.com.my
FORECASTS AND VALUATION
FY Dec (RM m) 2006A 2007F 2008F 2009F
Turnover 3,808.5 4,285.3 4,430.2 4,856.6
EBITDA 1,358.0 1,713.3 1,842.8 2,032.0
Pre-tax Profit 1,138.7 1,481.0 1,688.6 1,824.3
Net Profit 945.9 1,098.6 1,249.9 1,368.6
Net Pft (Pre Ex.) 945.9 1,035.4 1,249.9 1,368.6
EPS (sen) 17.3 18.6 21.2 23.2
EPS Pre Ex. (sen) 17.3 17.5 21.2 23.2
EPS Gth (%) (2) 8 14 9
Diluted EPS (sen) 17.3 17.5 21.1 23.1
Net DPS (sen) 3.9 4.7 5.6 6.7
BV Per Share (sen) 114.3 137.3 152.9 169.4
PE (X) 21.9 20.3 17.9 16.3
PE Pre Ex. (X) 21.9 21.6 17.9 16.3
P/Cash Flow (X) 14.9 15.9 14.9 13.7
EV/EBITDA (X) 14.7 11.0 9.8 8.5
Net Div Yield (%) 1.0 1.3 1.5 1.8
P/BV (X) 3.3 2.8 2.5 2.2
Net Debt/Equity (X) CASH CASH CASH CASH
ROAE (%) 16.0 15.3 14.6 14.4
SHARE PRICE CHART
RM
4.50
3.50
2.50
1.50
Sep-06 Nov-06 Jan-07 Mar-07 May-07 Jul-07 Sep-07
Resorts World
100-Day MA
AT A GLANCE
Issued Capital (m shrs) 5,790
Mkt. Cap (RMm/US$m) 21,887 / 6,271
Major Shareholders
Genting Berhad (%) 56.0
Great Eastern Life (%) 3.0
Free Float (%) 41.0
Avg. Daily Vol.(‘000) 14,774
Earnings Rev (%): 2007: - 2008: -
Consensus EPS (sen): 2007: 20.5 2008: 22.6
Variance vs Cons (%): 2007: (9.3) 2008: (6.2)
Sector : Consumer Services
Bloomberg/Reuters Code: RNB MK/RWBW.KL
Principal Business: Hotels, resorts, casino and recreational
activities
Resorts World
Towards a bigger world
Story: The Group recently highlighted the need to
preserve a healthy cash pile in the near or medium term. We
reckon this will prepare the Genting Group (referring to the
enlarged Lim family business entity) for future investment
considerations, specifically in the gaming context.
Point: We reckon Resorts will likely be the “one” to
undertake Genting Group’s next gaming project, given its
growing cash coffer. We estimate Resorts World will have c.
RM3.3b (or RM0.57 per share) of cash reserves by year end,
driven by strong operating cashflow at the hilltop resort,
disposal of 14% stake in Star Cruises and after accounting for
Resort’s portion of subscription for GIL’s 3-for-5 rights issue.
Relevance: Maintain Buy on Resorts with a RM4.70
RNAV-based price target. We expect the Group to dish out
gross 6.5 sen dividend (+20% y-o-y), implying a yield of
1.7%.
Building a war chest….In a recent briefing, the Group
highlighted the need to build a war chest for future investment
opportunities. Interestingly, no distinction was made as to which
vehicle will undertake the next project. This is a significant
divergence from the Group’s earlier stand where Genting
International (GIL) is touted to undertake all overseas gaming
ventures while Resorts World concentrates on operations at the
hilltop resort.
…..to lead the Group’s next global pursuit. We reckon Resorts
World will likely be the “ideal” candidate to undertake Genting
Group’s next gaming project given its growing cash coffer. We
estimate Resorts will have c. RM3.3b (or RM0.57 per share) of
cash reserves by year end. This excludes the Group’s share
buyback activities and depending on the level of buyback, will
still leave the Group with between RM640m and RM2.2b of cash
reserve.
Inflection point? The Group has traditionally held a minority
stake in Genting’s overseas venture (6% of GIL, 20% of Star
Cruises), rendering it difficult to drive value for shareholders of
Resorts. In our opinion, the discount to regional and global peers
should narrow in the presence of the following catalyst: (i)
Resorts’ ability and capacity to spearhead Genting Group’s future
investment; (ii) which not only inevitably lessens the reliance on
Malaysia going forward but also provide earnings scalability for
Resorts World; and (iii) the initiation of share buyback signals the
Group’s pragmatic move with regards to capital management.
Reiterate our Buy call on Resorts with a RM4.70 RNAV-based
price target.
Refer to important disclosures at the end of this report
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