GenT’s 1QFY19 core PATMI of RM628m (-7.5%QoQ; -15.0% YoY) came in within ours and consensus expectations respectively. 1Q19 weaker earnings were dragged by lower VIP volume from RWS and higher casino duty from RWG respectively. We believe that the VIP market segment will be shaken by the rising completion from Asean Casinos which may negatively affect RWG and RWS. However we are in view that GenM will place focus on cost rationalisation to improve overall groups operating efficiency. We keep our earnings forecast unchanged. Maintain HOLD with slightly higher SOP based target price of RM6.77.

Within expectations. 1QFY19 core PATMI of RM628m came in within ours and consensus full year forecast at 27% and 26%, respectively.

Dividend. None

QoQ. Despite revenue increase by 3.2%, core PATMI declined by -7.5% mainly dragged by lower EBITDA contribution from RWG due to higher casino duty, and lower VIP volume from RWS, coupled higher effective tax rate and finance cost. This is in spite of better operating performance from plantation due to better performance of downstream segment mainly to higher offtake at both its biodiesel and refinery operations.

YoY. Similarly, although 1QFY19 revenue was up by 6.1%, core PATMI was down by -15% to RM627.9m, mainly dragged by weaker contribution from RWS (as gaming revenue declined by 15.2% this is due to stronger regional competition proven by the lower VIP volume recorded this quarter) couple with higher finance cost.

Outlook. We believe the VIP market segment will be shaken by the rising completion from Asean Casinos (Vietnam, Cambodia and Philippines), which may negatively affect RWG and RWS. That said, we turned slightly more optimistic as it is expected to demonstrate better operating efficiency arising from further cost rationalisation, amidst the uncertainties of its outdoor theme park development. On the other hand, we are also of the view that GenP’s near-term upside may be capped by current weak CPO price and property sentiment.

Forecast. Our earnings estimates remains largely unchanged as the increase in GenM earnings is offset by lower contribution from GenP. Maintain HOLD with a slightly higher SOP based target price of RM6.77 (from RM6.75) after imputing higher TP for GenM. We believe that the potential upside from GenM may be offset by GenP due to weak CPO prices couple with GenS upcoming SGD 4.5bn expansion. Hence these may deter investors’ near term interest on GenT. We prefer GenM (BUY, TP: RM3.53) for gaming exposure.

Source: Hong Leong Investment Bank Research - 30 May 2019