Genting’s (GENT) 9M18 core-PATAMI of RM1,640m (+41%) yoy is within our expectations but below consensus, delivering 72% and 67% of respective FY18 forecasts. Although performance is tracking along our forecast for 2018, the recent share price correction is mainly related to its subsidiary, Genting Malaysia (GENM) which outlook remains murky. We have lowered our EPS forecast for FY18- 20E by 1.7%-21.5% and reduced our TP to RM 10.90 but maintaining our BUY call.

Earnings Cut Is Mainly Due to Malaysia Gaming

Apart from plantation and property, the other segments including gaming delivered 9M18 EBITDA yoy growth. EBITDA for the gaming segment grew by 11% yoy, supported by the recovery in the Malaysian operations. However, the main reason for the earning downgrade for FY19-20E is due to the weaker outlook for the Malaysia gaming operation, as the government has raised gaming taxes (during Budget 2019) while the opening of the outdoor theme park is likely to be delayed beyond 2019.

Resort World Las Vegas Still on Track

Management is still guiding for Phase 1 of the Resort World Las Vegas project to be opened by mid-2020. Currently 39 levels of the West Tower and 36 levels of the East Tower have been completed. Management has raised the overall capex guidance Phase 1 from US$3bn to US$4bn, as they have revised its plans to wholly own all the hotel rooms in Phase 1. GENT has managed to secure project financing of close to US$2bn reducing any funding concerns. Hence, we believe that the project can still be completed on schedule, even if GENM is to lower its dividends post 2018.

Reaffirm BUY Call But With a Lower TP of RM 10.90

We have cut our EPS forecast for FY18-20E by 1.7%-21.5%, to factor in the new operating environment for the Malaysian operations. We are reaffirming our BUY call on GENT but with a lower RNAV-based 12-month TP of RM10.90. GENT’s valuation remains attractive, as the holding company discount is still above the +1 SD of its 5-year historical average.

Risks to our call

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

Source: Affin Hwang Research - 3 Dec 2018