GuocoLeisure profits plummet by 67% in 1Q

Adverse FX translation marred hotel performance.

GuocoLeisure (GL)'s reported net profit fell 67% yoy to US$11m in 1QFY17 (1QFY16: US$31.4m), due to a one-off legal provision expense of US$8.5m recognised in 1QFY17, while 1QFY16 was boosted by a one-off compensation of US$13.1m for the cessation of management contracts of 19 UK hotels.

Revenue fell 15% yoy in 1QFY17 to US$97.8m (1QFY16: US$115.1m) due to adverse FX translation for UK businesses.

CIMB noted that excluding the US$8.5m one-off legal provision, core net profit of hotel division declined 13% yoy to US$17.8m in 1QFY17 (1QFY16: US$20.6m) purely due to the adverse FX translation from the weakened £.

Despite the weaker yoy performance, 1QFY17 hotel core net profit showed substantial improvement qoq (4Q16: US$7.9m).

Management attributed qoq improvement to bolstering effect of weaker £ on inbound tourism to UK.

Meanwhile, improved oil & gas (O&G) royalty income was achieved on higher gas production.

Net profit related to the oil & gas royalty income improved 23% yoy from US$3.5m in 1QFY16 to US$4.3m in 1QFY17 due to higher gas production at Bass Strait, and helped
by stabilising crude oil price (c.US$52/barrel today).

Management believes that oil prices will not return to the previous high any time soon, and expects fluctuations in oil price to continue to cause volatility in the group's oil & gas royalty income.

Net losses of the gaming business widened to US$1.2m in 1QFY17 from US$0.4m in 1QFY16.

According to CIMB, the yoy higher loss was due mainly to the group's repositioning of the Clermont Club (the only casino under GL's gaming business) to focus on the midend
market (previously focused on high-end players).

The research house said that this should help to reduce volatility of casino performance in future.

Management said it is also exploring options to unlock value from the casino via part or full disposal of its stake in the casino.

Management guided for a cautious outlook in the next twelve months. CIMB however noted that the weakened £ could bolster inbound tourism to the UK, the resulting positive impact may not be sufficient to fully mitigate the negative impact from adverse FX translation on the group's hotel earnings.

"This is reflected in our forecast of 5% yoy dip in the group's FY17F core net profit," said CIMB.

Management expects to launch three refurbished hotels (c.100 rooms each) towards the end of FY17F.

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