Results

Below Expectations – Reported 1QFY14 core PATAMI of RM532.6m came in below expectations, accounting for only 21.4% of our full year earnings. Against consensus’, the group’s core PATAMI was in line (24.3%).

Deviations

Higher-than-expected payroll costs in Malaysia and US.

Higher-than-expected D&A costs in GenM. Highlights

Gaming: all casinos recorded yoy growth in revenue largely from higher volume of business in premium players segment and favourable hold percentage. Gaming in the US was largely due to the contribution of Resorts World Bimini (RWB) which commenced operations in mid-2013 while revenue from Resorts World New York (RWNY) came in flattish.

EBITDA-wise, Malaysia, Singapore and UK experienced growth from improved margins. US property’s EBITDA was impacted by the operational challenges associated with the start-up of RWB.

Non-gaming: Hospitality in Resorts World Genting was affected due to lesser visitors arising from the closure of its outdoor theme park. On the other hand, non-gaming division in Singapore continued to experience healthy growth from both its Universal Studio Singapore (USS) and Marine Life Park (MLP).

GenT’s 1QFY14 power division earnings only came from its Banten power plant in Indonesia while 1QFY13’s power division includes revenue from Meizhou Wan Power Plant in China. Profit from Meizhou Wan has been reclassified as discontinued operations following the disposal of 51% stake in Fujian Pacific Electric Co Ltd.

Increased yoy revenue of the plantation division was from higher contribution from Indonesia on the back of stronger palm product selling prices and higher FFB production. Increased EBITDA was driven by higher revenue and lower fertilizer prices.

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

With higher assumptions in GenM’s payroll and depreciation and amortization costs, GenT’s FY14-16 EPS is tweaked downwards by 0.8-2.0%.

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 cut slightly to RM12.08 (from RM12.14) based on SOP valuations. Maintain BUY.

Source: Hong Leong Investment Bank Research - 30 May 2014