Results

Below Expectations – Reported 1HFY14 core PATAMI of RM940m came in below expectations, accounting for only 38.2% and 42.9% of ours and consensus full year earnings.

Deviations

Weaker-than-expected performance for operations in Malaysia, Singapore, UK and US, partly mitigated by Genting Plantation’s strong 1HFY14.

Dividends

Declared single tier interim dividend of 1 sen/share, representing payout and yield of 10% and 0.1% respectively.

Highlights

Gaming: All casinos except in US recorded declines in revenue from weaker hold percentage as well as lower volume of business in its VIP segment (Malaysia and UK). US on the other hand experience growth on the back of the commencement of Resorts World Bimini in June 2013.

EBITDA-wise, higher payroll costs in Malaysia, Singapore and UK as well as operation challenges in Bimini have resulted in a decline in group EBITDA.

Non-gaming: Hospitality in Resorts World Genting was affected due to lesser visitors arising from the closure of its outdoor theme park. Non-gaming revenue in Singapore was rather flattish as we believe this was due to diminishing novelty effect of its Marine Life Park.

GenT’s 1HFY14 power division earnings only came from its Banten power plant in Indonesia while 1HFY13’s power division includes revenue from MeizhouWan 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.

Plantation division revenue increased yoy mainly due to stronger palm product prices and higher FFB production. Consequently, adjusted EBITDA more than doubled due to the higher revenue and lower input costs arising mainly from 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

We imputed the latest earnings revision from GenS, GenM and GenP and as such, FY14-16 EPS is cut by 11.9%, 13.1% and 14.6% respectively.

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 revisions, TP is cut slightly to RM10.81 (from RM11.73) based on SOP valuations. Maintain BUY.

Source: Hong Leong Investment Bank Research - 29 Aug 2014