Period     1Q13

Actual vs.  Expectations    The 1Q13 results came in slightly below expectations with the core net profit of RM545.3m making up 23% of our full-year FY13 estimate as well as that of the market consensus.

This was mainly due to the weaker-thanexpected earnings from RWS and Genting UK.

Dividends    No dividend was announced as expected.  

Key highlights    The 1Q13 headline net profit plunged 84% QoQ to RM397.8m from RM2.48b in 4Q12 due chiefly to the absence of the one-off disposal gain of RM1.89b reported in the preceding quarter. ExEI, the core earnings declined by 16% due to (1) poorer luck factor hitting its casinos in Singapore as well as in London and (2) weaker plantation earnings. In fact, there were also higher contributions made by the company in support of its social responsibility efforts, which we estimated to be c.RM187m.  

After enjoying the good luck factor in 4Q12, Genting Singapore plc’s (“GENS”, NOT RATED) earnings got hit again as the rolling chip-win percentage for its premium segment dropped to 2.1% from 3.0% previously. As a result, the 1Q13 adjusted EBITDA dropped 29% QoQ to RM634.4m while revenue declined 16%.

Genting Malaysia Bhd’s (“GENM,” OP, TP: RM4.39)  reported earnings improved slightly QoQ in 1Q13 and matched our estimates as well as that of the market consensus. The adjusted EBITDA for the Malaysia casino was down 26% QoQ on higher promotional expenses. The UK operations were hit by the luck factor at its London casinos, which saw its adjusted EBITDA contracted by 46% while RWNYC’s earnings normalised and jumped 62% QoQ after being hit by Super Storm Sandy in the previous 4Q12.

Although the CPO prices recovered by 3% QoQ, Genting Plantations Bhd’s (“GENP”, MP; TP: RM9.00) 1Q13 earnings contracted due to seasonally lower FFB volume, which dropped 21% over the quarter. The average CPO selling price rose 3% to RM2,293/mt in 1Q13 vs. RM2,219/mt in 4Q12 while the average palm kernel average price  gained 6% to RM1,165/mt from RM1,097/mt previously.

Meanwhile, despite revenue inching up by 3%, the Power segment adjusted EBITDA plunged 59% QoQ in 1Q13 due mainly to a lower dispatch at the Meizhou Wan Power Plant in China. In addition, the 4Q12 results included a near one month earnings from the discontinued Malaysia’s IPP, which was disposed on 22 Oct 2012.

Outlook    The GENTING’s 2Q13 earnings are expected to normalise after a seasonally strong 1Q due to the CNY effect. Contrary to the optimistic outlook guided by GENS three months ago, its management has turned cautious during a conference call early this month. GENM should enjoy higher earnings on the resilient RWG earnings and the upcoming Resorts World Bimini in Bahamas, which will be launched in 3Q13 and should boost earnings for the USA operation. Nonetheless, the earnings from Genting UK could be volatile while CPO prices are expected to recover from 2H13 onwards, which should augur well for GENP. 

Change to Forecasts   We are cutting our FY13 estimate by 9% after adjusting for (1) lower earnings assumptions for RWS and the London casinos; (2) a lower CPO price assumption to RM2,700/mt from RM2,850/mt and (3) the tax credit arising from the USA operation. 

On the other hand, we are upgrading our FY14 forecast by 2% after adjusting for (1) higher property earnings; (2) higher power earnings; (3) lower London casino earnings; and (4) a lower CPO price assumption to RM2,700/mt from RM2,850. In addition, we are introducing our new FY15 estimates, where we expect earnings to drop slightly by 1%. 

Rating  Upgrade to OUTPERFORM

Valuation     Our new price target is now at RM12.28/share (up from RM10.22/share previously) based on an unchanged 20% holding company discount to its SOP valuation. The adjustment is mainly due to the change in the target prices for GENM and GENP, and  the market share prices of GENS and Landmarks. At the same time, we have also rolled over our valuation base year to CY14 from CY13 previously. 

Risks    Poor luck factor.

A sustained decline in CPO prices.

Source: Kenanga