We are maintaining our BUY call on Genting Berhad (GENT) with a lower TP of RM12.23, having revised down our FY17E-19E EPS forecast by 7-19% after incorporating the cut in earnings for the Malaysian gaming operations, Genting Plantation earnings, higher finance cost and also lower investment income. 9M17 PATAMI at RM1,240m (+1.2% yoy) is below both our expectations and consensus.

Weak GENM offset the gain from GENS

Although GENS reported a very strong set a numbers, the gains were offset by the weak results from Malaysia, due to an unfavourable swing in the win rate at its VIP segment. Moving forward we believe, that the earnings growth would recover, as contribution from GENS would continue to grow as they started giving credits to its VIP clients, while the normalisation of win rate for GENM should provide some decent upside.

Impairment and unfavourable forex movement

Apart from the weak performance from GENM, the other factors that offset the gain from GENS, were the impairments and higher investment losses. The impairments were due to the UK casino license (owned by GENM), however the impairment value for GENT is higher than that recorded at GENM, due to the difference in accounting treatment when GENM bought over the asset from GENS. The lower income from the investment arm, was mainly due to unfavourable forex movement (strengthening of ringgit).

Still a BUY but with a lower TP of RM12.23

We are maintaining our BUY call on GENT with a lower TP of RM12.23, as we incorporate the latest fair value of its listed subsidiaries – GENS, GENM and GENP. GENT remains our top pick in the gaming sector, as it is a cheaper alternative to benefit from the upside of its other listed subsidiaries, Genting Malaysia and Genting Singapore, and its holding co discount is still above the +1 stdev of its historical average.

Risk to our call

Key downside risk to our call include: 1) Further delays to the opening of theme park; 2) Fewer-than-expected high-roller arrivals, and 3) Unfavourable luck factor

Source: Affin Hwang Research - 24 Nov 2017