GenT’s 1HFY19 core PATMI of RM1.2bn (-6.7% YoY) came in within ours and consensus expectations. We believe that the VIP market segment will be shaken by the rising completion from ASEAN casinos which may negatively affect RWG and RWS. With the acquisition of Empire, GenM is expected to incur losses of more than RM200m/year (from the acquisition) if no immediate turnaround plans are in sight. We lower our FY20/21 earnings estimates by 4.6%/2.7% respectively as we update the lower contributions from GenP and GenM. Maintain HOLD with a lower SOP based target price of RM6.45 (from RM7.05) after imputing GenP’s and GenM’s latest TP.

Within expectations. GenT reported 2QFY19 core PATMI of RM580.4m (-7.6% QoQ, +4.3% YoY), which brings the 1HFY19 sum to RM1208.4m (-6.7% YoY). This formed 53% of our and consensus full year forecasts, respectively. We deem this within expectations as we note that losses from GenM’s Empire acquisition should flow in sometime in 4Q19 (i.e. target completion deadline).

Dividend. None

QoQ. Revenue remained relatively flat (-2.3%) at RM5.4bn while core PATMI declined -7.6% to RM580.4m. The decrease in core PATMI was largely due to a higher effective tax rate coupled with lower contributions from Singapore (i.e. higher impairment on receivables from the increase in VIP players from SEA).

YoY. Revenue increased 12.9% largely due to improved contributions from the Malaysia and Singapore operations. However, core PATMI only increased by 4.3% largely due to higher depreciation expenses.

YTD. Revenue increased 9.4% to RM11bn largely due to improved contributions from the Malaysia and Singapore operations. On the other hand, core PATMI decreased by -6.7% to RM1.2bn largely due to lower margins from the Plantation division, higher depreciation and lower net interests.

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. 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. With the acquisition of Empire, GenM is expected to incur losses of more than RM200m/year (from the acquisition) if no immediate turnaround plans are in sight.

Forecast. We lower our FY20/21 earnings estimates by 4.6%/2.7% respectively as we update the lower contributions from GenP and GenM. Maintain HOLD with a lower SOP based target price of RM6.45 (from RM7.05) after imputing Genting Plantation’s latest TP (RM8.67 from RM8.97) and Genting Malaysia’s latest TP (RM3.38 from RM3.79). We believe that upside to share price will be limited by GenM’s Empire acquisition coupled with drag from GenP amidst weak CPO prices. Hence these may deter investors’ near-term interest on GenT.

Source: Hong Leong Investment Bank Research - 30 Aug 2019