Period  2Q14/1H14

Actual vs. Expectations At 40%/45% of house/street full-year estimates, the 1H14 core net profit of RM973.4m was below expectations.

 The mainly culprits were: (i) disappointing results from Genting Malaysia Bhd (GENM, UP; TP: RM4.41), and (ii) 1H14 average CPO prices of RM2,619/mt which was lower than our FY14 assumption of RM2,800/mt.

Dividends  1 sen NDPS was declared in 2Q14 (ex-date: 26 Sep; payment date: 27 Oct) while there was no dividend for 1Q14 and 2Q13.

Key Results Highlights 2Q14 core earnings contracted 28% QoQ to RM407.4m from RM566.1m while revenue fell 6% over the quarter. This was attributable to a broadbase decline in casino operations, which saw its adjusted EBITDA being thumped 24% except for the North American operations.

 Genting Singapore plc (GENS, NOT RATED) reported 2Q14 PAT which contracted 49% QoQ to SGD131.7m on a 9% drop in revenue as gaming volume declined as the rolling chip volume fell 16% from the record SGD18.6b in 1Q14. As such, the adjusted EBITDA in MYR fell 22% QoQ on the back of 10% decline in topline. While luck factor was maintained at 3.0%, its VIP market share continued to expand to 60% in 2Q14 from 59%.

 GENM registered 2Q14 core earnings, which plunged 29% QoQ, due to lower hold percentage for VIP business for both RWG and the UK casinos. In fact, the UK operations turned red at EBITDA level. However, both RWNYC and RWB posted improved results thanks to higher business volume at the former while the losses for the latter were reduced.

 Genting Plantations Bhd (GENP, UP; TP: RM9.55) posted 2Q14 core earnings which rose 5%, although CPO prices dipped 3%. We believe it sold some inventories from 1Q14 production as the inventory was lower QoQ, thus resulting in better earnings despite lower CPO prices. Average CPO selling was RM2,583/mt from RM2,659/mt in 1Q14 while average palm kernel price slid 1% to RM1,967/mt in 2Q14 from RM1,994/mt. Meanwhile, 2Q14 FFB fell 1% to 374k mt from 377k mt in 1Q14.

 The Power division reported a higher adjusted EBITDA of RM18.4m in 2Q14 from RM9.7m as revenue rose 9%. The group had completed the disposal of 51% stake in Meizhou Wan Power Plant on 10 Jul-14. It will be accounted for as a JV contribution from 3Q14 onwards.

Outlook  The group earnings are expected to grow steadily in the coming years. In a conference call two weeks ago, the management of GENS sounded more cautious as the Singapore Tourism Board was expecting a slowdown in visitor arrivals in Singapore. Focus will be now on the Jeju venture and the potential new market in Japan, which could provide a new stream of income to the already saturated Singaporean market.

 GENM could continue to enjoy stable earnings on the resilient RWG earnings while the non-gaming earnings are set to soften on the closure of the outdoor theme park since Sep-13, but the impact is 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 GENP earnings are much dependent on CPO prices. The plantation earnings in 2H14 may be affected significantly should the CPO prices stay below RM2,100/mt for an extended period.

Change to Forecasts     We cut FY14-FY15 estimates substantially by 19%-9% to adjust for: (i) lower GENM earnings assumption on the back of poorer luck factor at RWG and UK casinos, and (ii) lower CPO price assumption of RM2,500/mt from RM2,800/mt.

Rating Maintain OUTPERFORM

Valuation  Post earnings revision, our new price target is revised to RM11.84/share from RM12.50/share previously based on an unchanged 20% holding company discount to its SoP valuation. The adjustment is mainly due to: (i) the change in our target prices for GENM and GENP, and (ii) the open market value of GENS and Landmarks shares.

Risks to Our Call Poor luck factor.

 A sustained decline in CPO prices.

Source: Kenanga