Results

• 9MFY16 core PATAMI of RM1.28bn came in within expectations, accounting for 73.3% and 75% of our and consensus full year estimates.

Deviations

• Largely in-line.

Dividends

• None.

Highlights

• Yoy, revenue was up (+0.8%) with mixed performance from its subsidiaries. Bottom-line was up by 56.1% riding on the strong showings from overseas leisure & hospitality business (L&H) in Singapore (SG), UK and US. Besides, power and plantation segments grew by 5.3x and 1.1x at EBITDA level.

• Qoq, revenue was up by 10.8% attributable to L&H in SG and MY on the back of favourable win rate, offset by lower business volume and forex effect in UK & US operations. Core PATAMI was elevated by 36.8% with improved results from GenS (improved margins and lower bad debt provisions) and GenP (stronger palm product selling price).

• YTD, core profit was up by 10.9% largely due to strong turnaround performance from L&H business in UK, higher contribution from Banten Power Plant, tax relief from GenM and higher interest income; but it was offset by lower performance from GenS.

• Gaming: Malaysia operation was relatively stable while GenS is stabilizing despite overall bleak gaming volume. In UK, consecutive quarters of encouraging performance being reported with better hold rate and bad debt recovery albeit overall business volume was still down. Operation in US was rather stable except Bimini was still running at losses.

• Plantation division recorded improvement, boosted by higher palm product prices and lower R&D expenditure.

• Improved results from Power division driven mainly from the construction of 660MW Banten Power Plant in Indonesia and Jangi Wind Farm.

• RWLV is on track for construction tendering works with a committed capex of up to US$2.8bn. Along with US$350m land cost and US$100m being spent so far; the project cost could be up to US$3.3bn (short of the known amount of US$4bn due to cost saving measures). We understand that management intends to fund the capex via at least 60% debt and the rest via internal funds.

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 subsidiaries, bottom-line for FY16 & FY17 are lowered by 1.5% & 1.9%, respectively.

Rating

BUY ↔

• We opine that the magnitude of discount on this cash rich leisure giant against its regional peers is unjustified at holding company level given its diversified business as it houses various business expansions which are set to bear fruit from 2017 onwards.

Valuation

• Maintain BUY with higher target price of RM9.81 (previously RM9.55) based on our SOP-derived valuation after incorporating latest TP from its subsidiaries.

Source: Hong Leong Investment Bank Research - 25 Nov 2016