Period  3Q14/9M14

Actual vs. Expectations  At 73% of our, as well as consensus’, full-year FY14 estimates, the 9M14 core profit of RM1.43b came in within expectations.

Dividends  No dividend was declared in 3Q14, as expected.

Key Results Highlights 3Q14 core earnings rose 20% QoQ to RM490.2m from RM407.4m while revenue grew slightly by 2%. This was partly due to: (i) a turnaround at its UK casino and (ii) the maiden contribution from the Chengdaoxi Block in the oil & gas segment.

 Genting Singapore plc (GENS, NOT RATED) reported 3Q14 PAT, which fell 3% QoQ to SGD127.1m while revenue contracted 14% as gaming volume declined, on the back of 9% decline in rolling chip volume to SGD14.3b, as well as poorer luck factor of 2% from 3%. In MYR term, the adjusted EBITDA fell 21% while revenue contracted 15%. But, VIP market share continued to grow to 61% in 3Q14 from 60% previously.

 Genting Malaysia Bhd (GENM, MP; TP: RM4.30) reported 3Q14 core profit, which jumped 29% QoQ due solely to the strong turnaround in UK casino operations while other units posted weaker results. In fact, the UK unit posted the strongest earnings since it became GENM’s subsidiary in 4Q10. However, RWG hit by higher cost for VIP segment and higher payroll while losses at RWB widened by RM8.8m. In addition, the North America operations incurred RM40.9m expenses for the casino licenses application in New York State.

 Genting Plantations Bhd (GENP, UP; TP: UNDER REVIEW) saw its 2Q14 core earnings fell 19% QoQ despite revenue rising 3%, no thanks to continued slide in CPO prices. The growth in topline was mainly driven by the property segment. The average CPO selling price fell 14% to RM2,216/mt from RM2,583/mt in 2Q14 while average palm kernel price plunged 27% to RM1,438/mt from RM1,967/mt. However, 3Q14 FFB rose 14% to 431k mt from 374k mt.

 Oil & Gas division reported turnaround earnings of adjusted EBITDA of RM49.5m in 3Q14 from loss of RM8.8m in 2Q14 after recognising the maiden contribution from Chengdaoxi Block in China. In June 2014, its 95%-owned unit Genting CDX acquired the 57% participating interest in the Chengdoxi Block in Bohai Bay of China, which is an oil producing field, for a total purchase price of USD186.1m plus an additional USD10.0m contribution towards future development cost.

 The Power division registered a lower adjusted EBITDA of RM9.3m in 3Q14 from RM18.4m in 2Q14 after the group 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 is optimistic of maintaining its business volume in the coming 4Q14 despite a slowdown in visitor arrivals. With the uncertainty of Chinese arrivals, business volume is likely to be ASEAN-centric in the coming months. Focus will be now on the Jeju venture and the potential new market in Japan, which could provide a new income stream 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 2013, 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 US-based earnings higher. Nonetheless, the earnings from Genting UK could be volatile given its VIP-centric profile while GENP’s earnings are much dependent on CPO prices. Meanwhile, plantation earnings are expected to be challenging given the prolonged lacklustre CPO prices which we had just revised the 2014 CPO price assumption for GENP to RM2,400/mt last Friday from RM2,500/mt. Our plantation analyst is looking to revise 2015 CPO price assumption with downward bias.

Change to Forecasts

 Although 9M14 earnings are within expectations, we are revising FY14E and FY15E forecasts slightly by -

0.3% and +0.3% after fine-tuning earnings for GENM, GENS, GENP, Oil & Gas unit and other housekeeping for depreciation, interest income and expenses. These include: (i) downgrading RWG on higher cost and lower business volume, (ii) upgrade UK casino on higher business volume on the back of stronger 3Q14 earnings, (iii) downgrade RWS on declining business volume, (iv) revise 2014 CPO price assumption to RM2,400/mt from RM2,500/mt, and (v) the incorporation of Chengdoxi Block earnings to Oil & Gas division.

Rating Maintain OUTPERFORM

Valuation  Post earnings revision, our new price target is revised to RM11.53/share from RM11.84/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 price for GENM, (ii) the open market value of GENS and Landmarks shares, and (iii) new oil & gas earnings from Chengdoxi Block.

Risks to Our Call Poor luck factor.

 A sustained decline in CPO prices.

Source: Kenanga