Genting’s (GENT) 1Q19 core-PATAMI of RM591.6m (-2.0% yoy) was above our expectation but within consensus, achieving 28% and 24% of respective forecast. The better-than-expected performance was mainly driven by the strong results from of its subsidiary, Genting Malaysia (GENM). We have lowered the fair value of Genting Singapore (GENS) due to its upcoming capex cycle, which has lead us to lower our TP for GENT to RM9.85. However, we maintain our BUY call.

Resort World Las Vegas Still on Track

Management is still guiding for Phase 1 of Resort World Las Vegas (RWLV) to be on track for its opening by mid-2020. The interest cost related the construction are currently capitalised, hence we are expecting a higher interest cost in 2021 post the completion of RWLV. As there are no changes to the capex plan, we see limited downside risk to our 17sen DPS forecast for FY19-20E. The capex guidance remains at USD4bn unchanged.

Cautions Tone Surrounding Its Core Gaming Operations

Although the performance of the group is largely inline with expectations, management (for the respective gaming subsidiaries) are concern over near term prospects. As overall gaming volume for the VIP segment had already taken a hit in 1Q19, due to increase competition from regional casinos, further escalation of the US-China trade tension would certainly negatively affect VIP volumes as well. New regional casinos are also aggressively competing for the premium mass-market segment.

Reaffirm BUY Call But With a Revised TP of RM9.85

We have lowered our EPS for 2019-21E by 3.4%-16.3%, to factor in the performance of its subsidiaries. We are reaffirming our BUY call on GENT despite lowering our SOTP-based TP to RM9.85 (from RM11.00), as we roll forward our valuation base to 2020. GENT’s valuation remains attractive, as the holding company discount is still above +1 SD of its past- 5-year 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 - 24 May 2019