Results

• In Line: Reported 1H17 revenue of RM9.7bn and core PATAMI of RM1.1bn (+50.6% YoY), accounting for 47.5% and 50.5% of HLIB and consensus estimates, respectively.

Deviation

• None.

Dividends

• Declared an interim dividend of 8.5 sen (2Q16: none), going ex on 11 Sep, a positive surprise as it usually distribute at the end of FY.

Highlights

• QoQ: Revenue grew by 3.9% attributable to higher contributions from all business operations except for US operation and Oil & Gas. Core PATAMI however, was down by 4.4% due to higher depreciation charges coupled with higher finance cost and larger loss from associates.
• YoY: Revenue improved by 17.2% with higher contributions from all segments except UK operation. Bottom line was up by 65.2% riding on the strong margins from most segments, except Malaysia and UK operation
• YTD: Core PATAMI grew by 50.6% attributable to growth from all segments, except Malaysia and UK operation outpacing top line growth of 8.9% due to improved margin.
• L&H segment: Malaysia operation recorded lower margin due to higher costs involved with premium business and opening expenses for GITP despite higher gaming volume.
• GenS continued to improve with higher market share and better win rate as well as higher margin. Operation in US was buoyed by growth at RWNYC with improved commission structure. In UK, lower reported earnings were primarily due to lower revenue resulting from lower win rate.
• Plantation segment recorded commendable performance underpinned by stronger palm product selling price and higher FFB production.
• Power segment. The 660MW Banten Power Plant in Indonesia has started to contribute from the sale of electricity since end of March.

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 various subsidiaries leading to higher FY17/FY18/19 EBITDA by 1.5%/0.5%/3.0% with a higher assumptions of DPS of 16 sen for FY17.

Rating

BUY ↔, TP: RM11.74 ↑

• We believe GenT is the cheaper proxy to buy into GenM’s GITP growth and the excitement in Japan of GenS. We see limited 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 RM11.74 (previously RM11.63) based on our SOP-derived valuation after incorporating latest TP from its listed subsidiaries.

Source: Hong Leong Investment Bank Research - 19 Sep 2017