Genting’s (GENT) 1H18 result was below expectations as net profit of RM384m in 2Q18 (-12% qoq) lagged after a strong 1Q18 result. Genting Malaysia’s (GENM) earnings gained momentum (+11% qoq) but Genting Singapore’s (GENS) earnings declined (-18% qoq). Net profit fell 12% yoy to RM986m, mainly due to lower net exceptional gains. Core net profit grew 18% yoy to RM950m in 1H18. We maintain our earnings forecasts on expectation that GENS’ earnings, which was hit by poor luck factor in 1H18, will rebound in 2H18. We are maintaining our BUY call on GENT with TP of RM12.80.

Below Expectations

Genting reported net profit of RM986m (+12% yoy) in 1H18, which comprises 40% of consensus full-year forecast of RM2,471m and 44% of our estimate of RM2,263m. Genting’s revenue grew 4% yoy to RM10.1bn in 1H18 on the back of all segments posting positive growth: leisure and hospitality (L&H +3% yoy), plantation (+10% yoy), property (+5% yoy) and oil and gas (O&G +5% yoy). Only its power division (-1% yoy) and others (- 4% yoy) saw revenue contractions.

Lower Exceptional Gains

Net profit fell 12% yoy in 1H18 due to the lower net exceptional gain of RM36m in 1H18 compared to RM339m in 1H17, which was boosted by gains from the sale of a subsidiary. Adjusted EBITDA grew 12% yoy to RM3.93bn, mainly driven by L&H (+7% yoy), property (+3% yoy), O&G (+2% yoy) and power (+11% yoy) segments. Adjusted EBITDA for its plantation segment declined 11% yoy due lower CPO selling price and higher cost. The improvement in the power segment was due to the commencement of its Banten coal-fired plant in March 2017, while the higher oil price lifted the O&G earnings.

Maintain BUY With a Slightly Higher TP of RM12.80

We are maintaining our BUY call on GENT with a RNAV-based 12-month TP of RM12.80. GENM is our top pick in the gaming sector, as we believe the opening of the theme park by year-end would be a re-rating catalyst for the stock. Nevertheless, GENT’s valuation remains attractive, as the holding company discount is still above the +1 Stdev of its historical average.

Risks to Our Call

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

Source: Affin Hwang Research - 30 Aug 2018