Results

• Within expectations: Reported 9M17 revenue of RM14.8bn and core PATAMI of RM1.6bn (+27.5% YoY), accounting for 64.5% and 69.1% of HLIB and consensus estimates, respectively.

Deviation

• In line at EBITDA level (78.4%). The deviation at bottom line was mainly due to MI.

Dividends

• None.

Highlights

• QoQ: Revenue grew by 1.7% mainly attributable to higher contribution from GenS. Core PATAMI however, was down by 20.0% due to due to weaker performance from Malaysia due to poor luck factor and higher cost as well as lower contributions from US operations.

• YoY: Revenue improved by 7.6% with higher contributions from all segments except Malaysia operation. Bottom line decreased by 8.4% due to lower contributions from Malaysia and UK operations.

• YTD: Core PATAMI grew by 27.5% attributable to growth from all segments, except Malaysia and UK operations; outpacing top line growth of 8.4% thanks to higher gaming revenue, lower impairment and cost efficiency from GenS.

• L&H segment: Malaysia operation recorded lower margin due to lower win rate coupled with higher payroll and utilities costs related to opening of new GITP facilities GenS continued to improve with higher volume of business 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, higher FFB production and higher sales of refined products.

• We understand that the project in RWLV is progressing well according to schedule and is slated to open by end of 2020.

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 lower FY17/FY18/19 EBITDA by 1.1%/1.3%/0.7%.

Rating

• BUY ↔ , TP: RM11.76

• We believe GenT is the cheaper proxy to buy into GenM’s GITP growth and the turnaround 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 RM11.76 (previously RM11.74) based on our SOP-derived valuation after incorporating latest TP from its listed subsidiaries.

Source: Hong Leong Investment Bank Research - 24 Nov 2017