Results

• 1QFY16 core PATAMI of RM468.9m came in within expectations, accounting for 26.1% and 26.3% of ours and consensus full year estimates.

Deviations

• None.

Dividends

• None.

Highlights

• Gaming: Malaysia operation was stable with healthy EBITDA margin of 35% and improved volume, offset by lower hold percentage and GST impact. The much awaited GITP is poised to ramp up its 1st phase opening consists of Sky Avenue (retail space) and new cable car system by 2H2016.

• RWS’s revenue was down due to shift of policy, slowdown in VIP segment and loss of market share. The prolonged volatile impairment on trade receivables from previous year will only be cleared by end of the year given the overall challenging collection activities.

• Improved condition from its UK operation, better hold rate from its premium players business and higher bad debt recovery masked the overall lower total volume. Operation in US is rather stable with better performance expected at Bimini in 2H given the full commencement of Hilton Hotel by June.

• Plantation division: Plantation operation in Malaysia recorded contraction in EBITDA mainly due to sharp decline in FFB production affected by lagged impact from dry weather in previous year.

• Power division: EBITDA was higher YoY driven mainly from the construction of 660MW coal-fired Banten Plant in Indonesia; meanwhile Oil & Gas segment contracted given lower oil price and the group expects no exploration drilling activities for 2016 as Kasuri Block enters its predevelopment phase.

• Reported bottomline was affected by the forex loss in foreign currency denominated assets. Stripping it off, the adjusted core PATAMI declined by a mere 3.8% yoy.

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

• Incorporate revised forecast from GenS and GenP resulting lower bottomline for FY16 & FY17 by 12.3% and 10.6%, respectively.

Rating

• BUY
• Maintain BUY rating on GenT given its geographical diversified business, value and cash rich position and serve as a growth proxy for various undergoing expansion plans.

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 lower target price of RM9.54 based on our SOP-derived TP from RM10.00 previously.

Source: Hong Leong Investment Bank Research - 25 May 2016