Period  3Q13/9M13

Actual vs. Expectations The 3Q13 results came in below expectations with the 9M13 core net profit of RM1.29b accounting for only 67% of our full-year FY13 estimates and 64% of market consensus.

 Again, the results were skewed by higher-than expected minority interest. However, the results were in line at PAT’s level as the 9M13 PAT of RM2.70b made up 77% of our full-year estimates.

Dividends  No dividend was declared in 3Q13, as expected.

Key highlights The 3Q13 core net profit fell 6% QoQ to RM448.6m despite revenue growing 6% over the quarter, mainly due to a loss of RM187.5m under the Investment & Other segment which consists of: (i) RM39.5m unrealised exchange losses for Genting Plantations Bhd (GENP, UP; TP: RM9.35) arising from the weakening of IDR on USD denominated borrowing and (ii) a SGD55.1m (c.RM140m) net exchange loss incurred by Genting Singapore plc (GENS, NOT RATED).

 GENS experienced a strong rebound in casino business volume, especially in the VIP segment, and a slight improvement in luck factor, pushing its 3Q13 PAT higher by 31% QoQ. In fact, its market share for the rolling chip volume improved significantly to 54% from 49% in 2Q13. As such, the 3Q13 adjusted EBITDA rose 15% while revenue grew 18% over the quarter.

 However, Genting Malaysia Bhd (GENM, MP; TP: RM4.39) reported core earnings contraction of 17% QoQ, hit by: (i) higher payroll, (ii) weaker earnings from its London casinos on lower business volume and hold percentage, and (iii) losses from the new USA unit, Resorts World Bimini (RWB). Resorts World New York City (RWNYC) was the only one which posted higher adjusted EBITDA, up by 7% QoQ.

 GENP reported a strong set of 3Q13 results where its net profit surged 65% thanks largely to seasonally higher FFB volume, which leapt 24% to 386k mt. The average CPO selling price in 3Q13 inched up another 1% QoQ to RM2,353/mt from RM2,325/mt in 2Q13 while the average PK price rose 8% QoQ to RM1,313/mt from RM1,216/mt.

 Elsewhere, the Power division reported higher 3Q13 adjusted EBITDA which surged 61% to RM92.8m on the back of 29% hike in revenue, thanks to higher dispatch at the Meizhou Wan Power Plant in China.

Outlook  The group earnings are expected to be better in 4Q13 as it is entering the busy festive year-end season. In the conference call early this month, the management of GENS remained optimistic in view of the potential new Japanese market. GENM should continue to enjoy stable earnings on the resilient RWG earnings while the higher payroll incurred in 3Q13 is an one-off event. Although non-gaming earnings are set to soften as the closure of the outdoor theme park since Sep-13, the impact would be minimal. While RWB which is still in its early day of operations may face challenges, RWNYC should be able to drive its USA earnings higher. Nonetheless, the earnings from Genting UK could be volatile given its VIP-centric profile while CPO prices are expected to recover from 2H13 onwards, which should augur well for GENP.

Change to Forecasts We are trimming our FY13 estimate by 9% to adjust for higher assumptions for minority interest while fine-tuning FY14-FY15 forecasts downward by less than 1%.

Rating Maintain OUTPERFORM

Valuation  Our new price target is revised to RM12.55/share from RM12.03/share previously based on an unchanged 20% holding company discount to its SoP valuation. The adjustment is mainly due to the change in the open market value of GENS and Landmarks shares and cash balance.

Risks to Our Call Poor luck factor.

 A sustained decline in CPO price.

Source: Kenanga