Results

• GENT reported FY15 core PATAMI of RM1.857bn above our and consensus’ estimates, accounting for 124.4% and 115.9% of ours and consensus estimates while topline was largely intact.

Deviations

• Higher interest income, lower tax and lower minority interest.

Dividends

• Proposed final single-tier dividend of 3.5 sen, representing a yield of 0.43%.

Highlights

• Gaming: Malaysia operation was stable with healthy EBITDA margin of 35% and improved volume, offset by lower hold percentage; additional RM5.38bn of capex for GITP where expansions will be rolled out in phases.

• For UK operation, full year results underperformed due to lower revenue from International Markets and higher bad debt written off. Meanwhile, results for US improved with EBITDA increasing by over 350%.

• RWS full year revenue was down by 16% due to shift of policy and slowdown in VIP segment and visitors’ arrival in Singapore. Earnings are expected to be less volatile moving forward with cleaner balance sheet (free from derivative financial assets and lower bad debt provision).

• Plantation division: Full year EBITDA declined by 30% due to the impact of lower CPO selling prices, lower production and higher CPO production cost, despite higher 4Q revenue.

• Power division: EBITDA was higher by 150% YoY driven mainly from the construction of 660MW coal-fired Banten Plant in Indonesia and improved contribution from Jangi Wind Farm in India; however contribution will be marginal in 1Q due to low wind season. Oil & Gas segment improved with full year contribution from Chengdaoxi Block in China.

• Pending for a finalized budget, Resorts World Las Vegas will begin its tender process with commencement of construction by 2HFY16.

• We continue to prefer GenT as the best exposure to gaming sector as it benefits from the catalyst of various expansion plans from its subsidiaries while having limited downside given its diversified business, stable and cash rich position.

Risks

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

Forecasts

• Inputted updated figures for FY15 into our model.

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

• Maintain BUY with higher target price of RM10.00 based on our SOP-derived TP from RM9.38 previously post adjustment of net cash position.

Source: Hong Leong Investment Bank Research - 24 Feb 2016