GenT reported 3QFY19 core PATMI of RM584.4m (+0.7% QoQ, -24.3% YoY), which brings the 9MFY19 sum to RM1792.8m (-13.3% YoY). We believe that the VIP market segment will be shaken by the rising completion from ASEAN casinos which may negatively affect RWG and RWS. That said, we turned slightly more optimistic as it is expected to demonstrate better earnings from GenP and GenM (from cost rationalisation). We tweak our FY19/20/21 earnings estimates by 2.8%/-2.4%/-1.5%, respectively as we impute the earnings changes from GenP, GenM and GenS. We upgrade our rating to BUY in-line with our earnings and TP revision upwards of GenP and GenM which was slightly offset by the reduction from GenS.

Above expectations. GenT reported 3QFY19 core PATMI of RM584.4m (+0.7% QoQ, -24.3% YoY), which brings the 9MFY19 sum to RM1792.8m (-13.3% YoY). This formed 78.7% and 78.3% of our and consensus full year forecasts, respectively, coming in marginally above expectations which was due to better than expected contributions from the Genting Malaysia.

Dividends. None Declared.

QoQ. Both revenue and core PATMI remained relatively flat at RM5,294.9m/RM584.4m (-2.8%/+0.7%).

YoY. Revenue remained relatively flat (-1.6%) while core PATMI decreased -24.3% largely due to decreased contributions from the Malaysia and Singapore operations, increased depreciation expenses (GenS had shortened useful life of certain assets in preparation for RWS2.0), and lower net interest.

YTD. Revenue increased 5.6% to RM16.3bn largely due to improved contributions from the Malaysia operations. On the other hand, core PATMI decreased by -13.3% to RM1,792.8m largely due to higher depreciation expenses and lower net interest

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 earnings from GenP and GenM (from cost rationalisation). With regards to GenP, we understand that utilisation at biodiesel plant will remain high until 1Q20, due to exports demand (for discretionary blending) locked in prior to CPO price surge. On the acquisition of Empire, we expect the potential negatives from the acquisition of Empire should be less profound than initially anticipated coupled with improvements in the Malaysia operations.

Forecast. We tweak our FY19/20/21 earnings estimates by 2.8%/-2.4%/-1.5%, respectively as we impute the earnings changes from GenP, GenM and GenS.

Upgrade to BUY, TP: RM6.73. We upgrade our rating to BUY in-line with our earnings and TP revision upwards of GenP (RM11.80 from RM8.76) and GenM (RM3.64 from RM3.38) which was slightly offset by the reduction from GenS (SGD1.14 from SGD1.17). We believe that upside to share price will stem from improvements in GenP (for its young age profile (11.5 years) and high earnings sensitivity to CPO price movement, based on management’s guidance) and GenM (as the potential negatives from the acquisition of Empire should be less profound than initially anticipated). Our BUY rating of RM6.73 (from RM6.45) is derived from a 50% holding discount to our SOP-derived TP of RM13.46.

Source: Hong Leong Investment Bank Research - 2 Dec 2019