GenT’s 9M18 core PATMI of RM2.1bn (+7.1% YoY) was above expectations given the better-than-expected results for GenM and GenS. Stronger YoY results were driven by better performances from all business operations except UK and plantation operations. Our earnings forecasts are revised upward after consolidating the revised forecasts of its subsidiaries. Maintain HOLD with lower target price of RM7.12 (was RM7.51) after imputing the revised lower TP of respective subsidiaries into our SOP valuation.

Above expectations. 9M18 revenue of RM15.4bn translated into core PATMI of RM2.1bn came in above expectations at 76.6% and 84.0% of HLIB and consensus full year forecasts, respectively. The positive surprise was attributable to better-than expected GenM and GenS results.

Dividend. None (3Q18: none). YTD dividend was at 8.5 sen per share.

QoQ. Revenue grew by 11.6% to RM5.4bn in 3Q18 with improvements from all segments. Core PATMI improved by 38.7% on the back of higher margins amid better win rates at RWS, RWG and UK, along with better performances from power and property segments. The results were partially offset by weaker results from plantation division and gaming operations in US.

YoY. 3Q18 revenue was up by 6.8% while core PATMI improved by 18.1% to RM772m, driven by better performances from all operations except for RWS (due to weaker forex) and plantations (soft palm product price). Notably, we have stripped off the impairment losses and tax expenses adjustments related to GenM accordingly.

YTD. Core PATMI rose 7.1%, in tandem with the higher revenue (+4.7%), mainly driven by stronger performances from all operations under leisure & hospitality especially Malaysia, more than sufficient to offset the weaknesses in UK (higher bad debt) and plantation division (lower palm product prices and higher finance cost).

GenM. Higher 9M18 volume achieved in both gaming and non-gaming operations while EBITDA margin improved to 44.3% from 39.0% thanks to higher revenue base, better win rate and tax holiday on top of robust 14% visitors’ growth.

GenS. Overall better 9M18 was spurred by with higher volume (higher market share) and improved margin (low impairment of bad debt and cost efficiency).

GenP. Higher FFB production and turnaround at the downstream segment were offset by lower palm product prices and higher finance cost.

Outlook. GenS is expected to continue showing positive results, benefiting from higher gaming volume and stable margin. Meanwhile, GenM will be undermined by the uncertainties of its outdoor theme park development and shrinking margin due to gaming tax hike. Growth trajectory for GenP in FY19 will be driven by increased harvesting areas and higher yielding brackets in Indonesia.

Forecast. Our FY18/19/20 earnings are revised upward by 1%/2%/2% respectively, after consolidating the revised forecasts of its subsidiaries. Maintain HOLD with lower target price of RM7.12 from RM7.51 (despite earnings increase) after imputing the revised lower TP of respective subsidiaries into our SOP valuation. Despite trading at a huge holding company discount of >40%, the uncertainties on GenM may deter investors’ interest. GenM’s GITP growth potential is undermined by hike in gaming tax and delays in the outdoor theme park.

Source: Hong Leong Investment Bank Research - 3 Dec 2018