Period  2Q13/1H13

Actual vs. Expectations  The 2Q13 results came in below expectations with 1H13 core net profit of RM837.5m accounting for only 39% of both our as well as market consensus’ FY13 full-year estimates.

 The main reason was the higher-than-expected minority interest in 1H13 which already accounted for 64% of our full-year assumption. In fact, at PAT level, the 1Q13 PAT of RM1.79b is 50% of our full-year forecast.

Dividends  No interim dividend was announced in 2Q13 vs. 2.6 sen GDPS paid last year. However, GENTING proposed a special cash dividend of RM0.50/share. (please refer to our separate report on GENTING today)

Key highlights  QoQ, The 2Q13 core net profit jumped 34% to RM466.3m from RM397.8m in 1Q13 mainly due to (i) Genting Malaysia Bhd (“GENM”, OP; TP: RM4.39) hit by higher contribution in support of social responsibility efforts in 1Q13; and, (ii) better luck factor at Genting Singapore plc (“GENS, NOT RATED) and UK casinos.

 A better luck factor at VIP segment and strong non-gaming business helped to push GENS’ 2Q13 earnings higher QoQ, despite rolling chip volume normalising from the seasonally strong CNY quarter of 1Q13. The rolling chip-win percentage for its premium segment improved to 2.5% from 2.1% previously. As such, the 2Q13 adjusted EBITDA leapt 21% QoQ to RM769.6m while revenue grew 4% to RM1.74b.

 GENM reported significant jump in 2Q13 earnings QoQ, largely due to the absence of corporate social responsibility costs which was heavily incurred in 1Q13. Operationally, all casinos across the board posted improved earnings on higher business volume and luck factor. 2Q13 adjusted EBITDA at the Malaysia operations expanded 46%; UK casinos 2-fold jump; USA operations 5%.

 Despite a QoQ recovery in CPO and palm kernel (PK) prices, Genting Plantations Bhd’s (“GENP”, OP; TP: RM9.35) 2Q13 earnings declined due to seasonally lower FFB volume (-14%) and lower property sales. The average CPO selling price inched up 1% QoQ to RM2,325/mt in 2Q13 from RM2,293/mt in 1Q13 while the average PK price grew 4% to RM1,216/mt from RM1,165/mt previously.

 Meanwhile, the Power division reported adjusted EBITDA which declined 28% QoQ, due to lower dispatch at the Meizhou Wan Power Plant in China.

Outlook  GENTING’s 3Q13 earnings are expected to be flattish before the seasonally busier 4Q13. In the conference call early this month, GENS guided an improved optimism in view of the potential new Japanese market despite an expected weaker economy growth in Singapore. GENM should continue to enjoy stable earnings on the resilient RWG earnings despite an expected lower income from the theme park which will be closed down this Sunday making way for the new RM400m 20th Century Theme Park to be opened in 2016. In addition, the newly acquired Resorts World Bimini in Bahamas, which will be launched in 3Q13 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 11% after adjusting for: (i) higher assumptions for minority interest, (ii) a lower CPO price assumption to RM2,400/mt from RM2,500/mt; and (iii) a lower PK price assumption of RM1,300/mt from RM1,625/mt.

 On the other hand, we are lowering our FY14-FY15 estimates by 1%-2%, mainly for the change in PK price assumption to RM1,315/mt for both FY14-FY15 from RM1,625/mt previously. However, we are keeping our RM2,700/mt CPO price assumption unchanged for FY14-FY15

Rating    Maintain OUTPERFORM

Valuation  Our new price target is now at RM12.03/share (from RM12.28/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 price for GENP, and the open market value of GENS and Landmarks shares.

Risks  Poor luck factor.

 A sustained decline in CPO prices.

Source: Kenanga