Results

• Reported FY16 revenue of RM18.4bn and core PATAMI of RM2bn in which is above expectations, accounting for 116.6% and 116.7% of our and consensus full year estimates.

Deviations

• Predominantly due to stronger performances from GenS and GenP.

Dividends

• Declared a special dividend of 6.5 sen payable on 30 Mar 2017 and proposed a final dividend of 6.0 sen, bringing FY16 dividend to 12.5 sen, yielding 1.4% based on current price.

Highlights

• YoY: Revenue was down (-3.4%) with higher contributions from Plantation segment, leisure & hospitality (L&S) segments in Singapore and Malaysia. Bottom-line was up by 36.1% riding on the strong showings from all segments (except property) with improved margin and efficiency.
• QoQ: Revenue was up by 1.5% attributable to higher contributions from Plantation segment, L&H segments in Malaysia, UK and US, offset by lower business volume and Singapore operations and Power segment. Core PATAMI was also up by 48.1% with improved results from all segments except UK operations and property segment.
• FY16: Core PATAMI was up by 18.9% largely due to strong turnaround performance from L&H business in UK, and improved performance for other segments. However, it was offset by lower performance from GenS due to the slowdown in gaming volume and high base due to tax refunds.
• Gaming: Malaysia operation was relatively stable while GenS is stabilizing despite overall lower gaming volume. In UK, results were turning into black with better hold rate and lower bad debt provisions. Operation in US was buoyed by growth at RWNYC but Bimini was still running at a loss.
• Plantation segment recorded stellar performance, boosted by higher palm product prices and FFB production.
• Improved results from Power segment driven mainly from the construction of 660MW Banten Power Plant in Indonesia as the plant approached completion and commissioning.
• RWLV is on track for construction tendering works with a committed capex of up to US$3bn (excluding land cost), which slates to open in 3 years’ time. We understand that the capex funding is likely in at least 60% debt.

Risks

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

Forecasts

• We incorporate revised forecast from subsidiaries and assumptions leading to higher FY17/FY18 bottom-line by 10.3% & 10.9%, respectively.

Rating

BUY ↔, TP: RM10.75 ↑

• We believe GenT is the cheaper proxy to buy into GenM’s GITP growth and the excitement in Japan of GenS. We see lesser downside given its deep valuation and the unjustified holding company discount of >30% with its subsidiaries poised to fare better with cleaner slate moving forward.

Valuation

• Maintain BUY with higher target price of RM10.75 (previously RM10.29) based on our SOP-derived valuation after incorporating latest TP from its subsidiaries.

Source: Hong Leong Investment Bank Research - 24 Feb 2017