Results

Below Expectations – Reported 1HFY13 core PATAMI of RM1.17bn came below expectations, accounting for only 42.7% and 46.1% of ours and street’s estimates.

Deviations

Poorer-than-expected performance by Genting Singapore (GenS) and Genting Plantation (GenP).

Dividends

Proposed special interim cash dividend of 50 sen/share less 25% tax (separate announcement).

Highlights

Yoy: Earnings growth in 2QFY13 decline largely due to GenUK, Power and Plantation divisions. GenUK suffered from high bad debts written off while Power division was impacted by lower dispatch from Meizhou Wan power plant in China. Plantation division continued being hit by lower palm product prices and higher production costs.

YTD: Revenue was lower (-1.9% yoy) due to the weak performances by its Singapore, Plantation and Power arms. GenS reported lower earnings on the back of lower-thanexpected hold percentage, while GenP was impacted by softer palm product selling prices.

On a separate announcement, GenT announced several proposals which includes; 1) special interim cash dividend of 50 sen/share less 25% tax; 2) restricted nonrenounceable issue of warrants on the basis of 1 warrant for every 4 existing shares at an issue price of RM1.50; and 3) proposed exemption to Kien Huat Realty Sdn Bhd from the obligation to undertake a mandatory take-over offer on the remaining shares in GenT not already held upon the exercise of warrants.

The proposals are expected to complete in 4QFY13.

We are positive on the proposal as it would benefit investors whereby shareholders do not need to pay for the warrants for they are effectively given for “free” (cash dividend paid are re-invested to purchase the nonrenounceable warrants), while we remain confident on the group’s future prospects.

Risks

1) Regulatory risk; 2) Weaker hold percentage; 3) Pandemic breakouts; 4) Appreciation of RM; and 5) Higherthan- expected cannibalisation from Marina Bay Sands (MBS) and Macau casinos.

Forecasts

We tweaked our earnings forecasts downwards by 10.8%, 0.25% and 0.31% for FY13-15 respectively after revising downwards earnings forecasts for GenS and GenP.

Rating

BUY

Positives – (1) Defensive stock; and (2) New sources of earnings from international markets to drive earnings growth.

Negatives – (1) Highly regulated industry; and (2) Leisure and hospitality’s earnings highly dependable on luck factor and hold percentage

Valuation

Post-earnings revision, TP is downgraded to RM11.33 (RM11.56 previously) based on SOP valuations. Maintain BUY on the stock as we remain positive with GenT’s ongoing and future developments across its subsidiaries.

Source: Hong Leong Investment Bank Research - 30 Aug 2013