Genting Bhd (GENT) reported a 6.8% decline in 1QFY19 net profit to RM561.6m, mainly impacted by an RM198.3m provision for termination of contracts by Genting Malaysia (GENM). At the adjusted EBITDA level, the results were in line with expectations, making up 25% of full-year estimates. The performance of its underlying operations remained stable with adjusted EBITDA growing by 2% YoY. Leisure & hospitality segment, which accounted for 89% of group’s adjusted EBITDA, posted a 2% decline due to lower contribution from Resorts World Sentosa (RWS). However, this was mitigated by higher contribution from Resorts World Genting (RWG). Plantation segment, the second-largest profit contributor, posted a 17% decline in adjusted EBITDA due to lower palm product selling prices. We maintain our earnings forecasts and our Outperform rating on GENT with an unchanged TP of RM8.80.

• 1QFY19 revenue rose 6% YoY. Malaysia’s leisure & hospitality business delivered an impressive 19% growth due to higher hold percentage in the mid to premium players segments. However, revenue from Singapore dropped 4% YoY due to lower business volume. Plantation posted another strong revenue growth of 18.5% due to higher offtake of biodiesel and refined palm products from the downstream division. Meanwhile, revenue from power division dipped 9.6% on lower generation from the Indonesian Banten coal-fired power plant.

• 1QFY19 net profit dropped 6.8% YoY. Despite strong revenue growth posted by RWG, adjusted EBITDA only improved by 3% due to the impact of higher casino duty. However, this was still able to cushion the impact of lower profit contribution from RWS, which declined by 6%. Plantation segment saw a 17.2% drop in adjusted EBITDA as the low margin downstream segment could not generate sufficient profit to offset the drop in upstream earnings. Leisure & hospitality segment remained the largest profit contributor, constituting 89% of group’s profit followed by plantation segment with 6% contribution. The decline in net profit was mainly due to the provision of costs in relation to GENM’s outdoor theme park.

• Maintain Outperform with RM8.80 TP. In the medium term, the key catalyst for GENT is the possibility of GENS securing one of the three Integrated Resort (IR) licenses in Japan. However, the bidding process and selection of IR operators would only take place in 2020. Trading at only 13x forward earnings, we see value in GENT and hence, maintain our Outperform rating on the stock.

Source: PublicInvest Research - 24 May 2019