Investment: Gaming Resorts

Resorts World (Resorts) reported 1Q07 net profit of RM237.6m. Ex-exceptional of RM67.2m from gain on dilution in Star Cruises, net profit would have been RM174.4m (-28.4%yoy, +18.1%qoq). Results was below our and consensus expectations due to larger than expected losses at Star Cruises, but we expect Star Cruises performance to improve in 2H07.

Star Cruises losses rose to RM94.1m (1Q06: RM46.5m), but an improvement from 4Q06's RM185.3m loss. Star Cruises earnings was hit by a) higher ship operating expenses per capacity day (+1.1%yoy) due to charter hire fee for Norwegian Crown, b) decrease in net revenue yield of
6.5% due to downward pricing ressure on inter-island cruises in Hawaii and lower onboard revenue in the Asia fleet. Star Cruises will be withdrawing Pride of Hawaii from the competitive Hawaii market effective Feb 08 and redeploy it to Europe for summer 2008 to capitalise on the growing demand for European cruises.

Revenue grew strongly by 28.9%yoy (-2.2%)qoq to RM1,063.9m, on the back of higher volume of business at Genting Highlands due to higher visitor arrivals and more favourable luck factor.

EBIT rose by 49.4%yoy (-13.5%qoq) on higher revenue and improvement in margin to 32.6% (1Q06: 28.2%, 4Q06: 36.9%) due to better luck factor and continued cost savings

Balance sheet continued to strengthen as net cash jumped to RM1,372.6m (23sen/share) vs 1Q06: RM148.8m, 4Q06: RM707.9m.

Maintain earnings estimates and HOLD call (entry price RM2.55).