Although stellar 3Q16 earnings were tax credit-driven, overall results remained resilient. The early phase of GITP will drive top line growth while tax savings on capex incentives will boost bottom line. Abroad from home base, UK and North America operations also saw earnings improvement which makes GENM a resilient performer within the Genting group. Nonetheless, we keep our MARKET PERFORM call with revised price target of RM4.80/SoP share.

3Q16 above. At 78%/90% of house/street’s FY16 estimates, 9M16 core profit of RM1.23b beat expectations. The positive variant between our forecast and actual report results was mainly due to lower effective tax rate of 12% in 9M16, as it started to recognise tax incentive for GITP as the early phase of expansion was completed, vs. our FY16 assumption of 24%. No dividend was declared in 3Q16 as expected.

A tax credit-driven result. Despite revenue dipping 3%, 3Q16 core profit rose 6% QoQ to RM467.7m from RM443.0m previously, largely due to a tax credit of RM12.5m from RM46.8m tax charge as the group started to recognise tax incentive for GITP upon the completion of the early phase of expansion. In 3Q16, the tax credit for Malaysian operations was RM21.7m vs. RM86.0m tax charge in 2Q16. Overall, Leisure & Hospitality operations posted lower earnings except the Malaysian unit with adjusted EBITDA rising 5% on higher hold percentage for the mid-to-premium segment. UK earnings fell 55% from high base coupled with weakening GBP against MYR while earnings for the North America unit contracted 53% on lower revenue and higher operating losses at Bimini operations in Bahamas.

Solid numbers from last year. YoY, 3Q16 core earnings surged 172% from RM172.2m while revenue rose 8%. The growth was led by: (i) UK operations where it turned profitable at EBITDA from a loss of RM86.8m in 3Q15 due to higher revenue and debt recovery in 3Q16, (ii) North America operations as adjusted EBITDA jumped 4.5- fold or RM20m to RM24.2m due to higher revenue and lower operating losses at Bimini. However, Malaysian EBITDA fell 5% on higher opex. YTD, 9M16 core earnings leapt 60% to RM1.23b from RM0.77b while revenue rose 9% largely due to the turnaround in UK operations as well as lower taxation as mentioned above.

GITP is the key focus going forward. While the main attraction, 20th Century Fox World Theme Park will only be ready by end-2017, the RM10.38b 10-year GITP development is progressively opening the retail space, restaurants and casino floor in 3Q16, which should be able to contribute to bottom line. Despite relatively good set of results so far, we remain cautious on the VIP-centric UK operations, which could be volatile while the Resort World Birmingham may need some time before showing meaningful results. Meanwhile, RWNYC numbers should be sustainable while Resort World Bimini is striving to be profitable next year.

Maintain MARKET PERFORM. We raised FY16-FY17 estimates by 5%-7% mainly on lower effective tax rate of 15% from 24% and finetuning on the casino operations. The price target is now raised to RM4.80/SoP share from RM4.78/SoP share. MARKET PERFORM retained. Downside risks to our call are depressed earnings on lower business volume and hold percentage.

Source: Kenanga Research - 25 Nov 2016