Period  4Q14/FY14

Actual vs. Expectations  The FY14 core profit of RM1.83b came below our estimates by 7%, which was due to Genting Singapore plc (GENS, NOT RATED) earnings coming in weaker than expected. But the results were within market consensus (+2%).

Dividends  NDPS of 3.0 sen was announced in 4Q14, totalling FY14 NDPS to 4.0 sen which was lower than our assumption of 6.4 sen.

Key Results Highlights  Despite revenue rising 3%, 4Q14 core earnings which fell 19% QoQ to RM396.8m due to weaker-thanexpected GENS’ earnings which contracted by 6%. The growth in topline was driven by RWG, property, oil & gas and power units.

 GENS posted 4Q14 PAT, which fell 6% QoQ to SGD118.9m as revenue dipped slightly by 1%. This was mainly due to the sharp decline in rolling chip volume which plunged 17% to SGD11.8b coupled with below historical luck factor of 2.2%. In MYR term, the adjusted EBITDA declined 22% to RM506.0m while revenue inched up 1% on stronger SGD. On the other hand, VIP market share fell, for the first time since 4Q13, sharply to 54% from 61% in 3Q14.

 Genting Malaysia Bhd (GENM, MP; TP: RM4.30) reported 4Q14 core profit, which rose 23% QoQ due to improved RWG earnings which was mitigated by lower earnings reported by the UK unit on lower hold percentage. RWB continued to report losses which widened to RM67m from RM8.8m. In addition, RWNYC posted higher payroll cost while there was a RM55.5m project cost written off for the North America operations, on the unsuccessful application of the licenses in the New York State.

 Genting Plantations Bhd (GENP, UP; TP: RM9.57) saw its 4Q14 core earnings doubled QoQ to RM145.4m, thanks largely to a RM85m one-off land disposal gain coupled with higher FFB volume by 10% to 473k mt from 431k mt. This is despite weaker CPO selling price by 2% to RM2,176/mt in 4Q14 from RM2,216/mt while average palm kernel price dropped 4% to RM1,378/mt from RM1,438/mt previously.

 Oil & Gas division continued to post higher earnings with adjusted EBITDA rising 35% QoQ to RM67.0m after it started recognising earnings contribution from Chengdaoxi Block in China in 3Q14. This was on the back of 23% hike in revenue to RM93.2m.

 However, the Power division registered a loss of RM13.4m at the adjusted EBITDA level from RM9.3m 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. On the other hand, the higher revenue for power unit was due to construction revenue for the 660MW coal-fired Banten Plant in Indonesia.

Outlook  The group earnings are expected to grow steadily in the coming years. In a conference call two days ago, the management of GENS is looking to grow the mass market besides the current premium segment. 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 (Resort World Jeju), which held its ground breaking on 12 Feb 2015, 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 with expectation to breakeven in 2H15, 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 very much dependent on CPO prices. Meanwhile, plantation earnings are expected to be challenging given that we expect CPO prices to weaken in 2H15 towards our target of RM2,200/mt due to weak oil prices, declining soybean oil prices and a weak MYR against USD. However, this could be partly offset by good FFB growth prospects of 11%.

Change to Forecasts  We keep our FY15E for now.

Rating Maintain OUTPERFORM

Valuation  Our price target is maintained at RM11.53/share, which is based on a 20% holding company discount to its SoP valuation.

Risks to Our Call  Poor luck factor.

 A sustained decline in CPO prices. 

Source: Kenanga