GenT’s 1Q18 core PATMI of RM644m (+16.6% YoY) was within expectations. Flattish QoQ results were attributed to mixed segmental results while higher YoY results were driven by stronger performances from all business operations except for UK. We foresee GenT to continue perform well with improved regional gaming outlook. FY18/FY19 earnings are revised higher marginally by 1.2%/3.1%, respectively, after consolidating the changes from its subsidiaries. Maintain BUY with higher target price of RM12.27 (from RM11.73) based on our SOP-derived valuation. We believe GenT remains a cheaper proxy to buy into GenM’s GITP growth and the turnaround of GenS with limited downside given its deep valuation.

Within expectations. 1Q18 revenue of RM5.3bn was translated into core PATMI of RM644.1m, accounting for 23.7% and 26.1% of HLIB and consensus full year forecasts, respectively. No dividend was declared, as expected (1Q17: none).

QoQ. Revenue was flat (-0.1%) with better contribution from leisure & hospitality operations in Singapore and US, offset by lower performance from other operations. Core PATMI improved by 9.3% on the back of better margin from GenS, thanks to its continued cost savings initiatives and lower bad debt provision. The other segmental results were mixed with plantation division posted declines due to lower CPO prices and higher cost while power division was affected by a planned shutdown in March. However, O&G showed improvement attributable due to higher oil price.

YoY. Revenue improved by 10.1% while core PATMI grew stronger by 16.6%, mainly driven by stronger performances from all operations under leisure & hospitality except for UK, where it was affected by lower volume and win rate. Stronger power division was elevated by the fully operational Banten power plant while O&G division benefited from the higher average oil prices.

GenM. Higher volume achieved in both gaming and non-gaming operations while EBITDA margin improved slightly at 33.4% from 32.5% thanks to higher revenue base, spurred by a robust 26% growth in number of visitors.

GenS . Higher QoQ and YoY EBITDA were achieved on the back of higher business volume, better win rate, and higher margin. The possible venture into Japan remains an upswing factor.

GenP. Flattish YoY results was due to higher finance cost and lower palm product prices, outstripping higher FFB production.

Outlook. The outlook for regional gaming outlook has turned positive with the return of VIP rollers. Both GenS and GenM will continue to benefit from the higher gaming volume in general. Barring any swing in luck factor, GenT is expected to continue perform well given the stable states of operating environment for its subsidiaries.

Forecast. FY18 and FY19 earnings are revised higher marginally by 1.2% and 3.1%, respectively, after consolidating the changes from its subsidiaries. Maintain BUY with higher target price of RM12.27 (from RM11.73) based on our SOP derived valuation after incorporating the updated TP for its subsidiaries. We believe GenT remains a 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.

Source: Hong Leong Investment Bank Research - 25 May 2018