GENTING produced a good set of FY16 numbers, from its gaming assets as well as plantation earnings, which came within expectations. Going forth, 2017 will be an exciting year given the new Japan market opportunity while the home tuft operations should see fruitful results from its GITP expansion program. In addition, CPO prices are set to trend higher which will flow through its bottom-line via GENP. Maintain OUTPERFORM with higher price target of RM10.19/share.

FY16 in line. FY16 results were within expectation with core earnings of RM1.92b coming in 5% above our estimate but beating market consensus by 12%. It has received special dividends from subsidiaries

GENM (MP; TP: RM5.66) and GENP (MP; TP: RM12.40) and higher dividend from GENS (Not Rated), GENTING also declared a special NDPS of 6.5 sen (ex-date: 08 Mar; payment date: 30 Mar) in 4Q16. Together with final NDPS of 6.0 sen (to be determined later), total NDPS for FY16 was 12.5 sen which was higher than our assumption of 4.0 sen and 3.5 sen paid in FY15.

A good set of operating numbers. 4Q16 core profit surged 27% to RM564.0m although revenue only inched by 1%. This was distorted by taxation and minority interest. At adjusted EBITDA level, earnings rose 4% to RM1.79b which was attributable to better gaming earnings from all geographical areas except UK operations coupled with stronger GENP numbers while Power segment turned loss-making of RM2.3m at adjusted EBITDA level owing to lower construction profit and higher opex for Banten Plant.

The same for YoY comparison, as 4Q16 and FY16 core earnings jumped 13% and 25% to RM564.0m and RM1.92b from RM500.1m and RM1.54b, respectively, mostly distorted by the same taxation and minority interest mentioned above. At adjusted EBITDA level, earnings jumped 39% and 14% to RM1.79b and RM6.12b from RM1.29b and RM5.38b, respectively, which was led by strong recovery of GENS in 4Q16, and turnaround of its UK unit in FY16. Besides, GENP also produced strong numbers, which saw its plantation earnings jumped 171% and 56%, respectively.

Mixed outlook, as it is still challenging in the near-term, especially for GENS as although it reported an initial recovery in VIP volume in 4Q16 in more than two years. However, we remain positive on RWG due to its stable earnings while the development under GITP should transform the hilltop resort into a main holiday attraction in the region. Meanwhile, the North American operations should improve further as new Resort World Bimini has shown improvement in the recent quarters while the UK operations could be volatile due to its VIP-centric business profile while the Resort World Birmingham may need some time before showing meaningful results.

Maintain OUTPERFORM. We upped FY17 estimates by 4% as we upgraded GENP as well as GENS earnings. A new FY18 forecast is introduced with earnings expected to grow at 6%. With new target prices for GENM and GENP, as well as updated market price for GENS, SoP valuation is increased to RM14.56 from RM13.05 as market value for GENS rose 9% and target prices for GENM and GENP upped 18% and 21%, respectively. Thus, the new price target is raised to RM10.19/share from RM9.14/share with unchanged 30% holding discount applied to the SoP valuation. Risks to our call are a decline in casino business volume coupled with poorer luck factor and decline in CPO prices.

Source: Kenanga Research - 24 Feb 2017