Results

• 1HFY16 core PATAMI of RM866.9m came in within expectations, accounting for 48.8% and 48.6% of our and consensus full year estimates.

Deviations

• None.

Dividends

• None.

Highlights

• Yoy, revenue was up (+1.4%) but adjusted EBITDA was down (-13.4%), largely impacted by lower contribution from GenS due to slower gaming volume, poor luck factor and higher base given one-off tax refund of S$102.7m. This was mitigated by higher sales from Malaysia and UK & US.

• Qoq, revenue declined -10.2% due to seasonally stronger 1Q, while EBITDA dropped by 10.8%, dragged by GenS, mitigated by Malaysia, US and plantation segments.

• YTD, EBITDA for all segments were lower, except for Malaysia and UK gaming operations, helped by better win rate, and Power Segment with increased construction revenue from its power plants.

• Gaming: Malaysia operation was stable. UK operation experienced consecutive quarters of encouraging performance with better hold rate and bad debt recovery albeit overall business volume was still down. Operation in US was rather stable with better performance expected at Bimini going forth.

• Plantation division recorded contraction in EBITDA mainly due to lower yields and higher manuring costs, outweighing the impact of higher palm selling prices.

• Power division: EBITDA was higher driven mainly from the construction of 660MW coal-fired Banten Plant in Indonesia and Jangi Wind Farm. Management has shared that GenT has disposed 40% stake in its Banten Plant to SDIC (China) its partner in Meizhou Wan plant and made a gain of US$70m which is parked in reserves.

• First Light Resorts in Massachusetts might see a delay due to the ongoing litigation process going in the US which the current ruling favouring the tribal while RWLV is on course for works and capex mobilization starting early 2017.

Risks

• 1) Regulatory risk; 2) Weaker hold percentage; 3) Pandemic breakouts; 4) Appreciation of RM; and 5) Cannibalisation from regional casinos.

Forecasts

• Incorporating revised forecast from GenS and GenP as well as updating our forecast assumptions, bottom-line for FY16 & FY17 is lowered by 1.9% and 3.9%, respectively.

Rating

• BUY

• Maintain BUY rating on GenT given its undemanding valuation despite geographically diversified business segments, cash rich position and a proxy for growth for its 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) Earnings highly dependable on luck factor and hold percentage

Valuation

• Maintain BUY with lower target price of RM9.55 (previously RM9.88) based on our SOP-derived valuation.

Source: Hong Leong Investment Bank Research - 26 Aug 2016