Generally an all-rounded and good yearly operating numbers in 1Q17, but fall short of estimates due to minority interests. With improving GENS numbers and the GIPT growth story at home, GENTING earnings are set to improve further. In addition, 2017 would be an exciting year given the new Japan market opportunity. We maintain OUTPERFORM on the stock with higher price target of RM11.30/share.

1Q17 below. 1Q17 results fell short of expectations with core earnings of RM379.3m making up only 18% of house/street?s FY17 estimates. This was due to higher than expected of minority interest. In fact, at PBT and adjusted EBITDA level, 1Q17 earnings made up 24% of our full-year estimates. There was no dividend declared in 1Q17 as expected as it only paid final dividend in the past two years.

A good quarter except plantation unit. Although 1Q17 core earnings fell 33% QoQ to RM379.3m with flattish revenue, the decline in earnings was primarily due to forex losses recorded in Investment & Others segment against forex gains in 4Q16 arising from net forex denominated financial assets. In fact, all business segments posted improved results except plantation unit which saw adjusted EBITDA felling 35% owing to seasonally weaker FFB production by 24%. Casino segment registered 6% earnings growth led by GENS (Not Rated) but Malaysia operations hit by cost incurred for new facilities at GITP. Meanwhile, Power earnings turned profitable as there was higher opex incurred on the new Banten Plant in 4Q16.

All-rounded good yearly numbers. Again, at core profit level, earnings contracted 31% YoY from RM547.5m in 1Q16, largely attributed to the minority interest mentioned above. At adjusted EBITDA and pre-tax levels, earnings jumped 18% and 28% respectively, which was led by a broad-base earnings growth for all segments. Earnings at Casino segment leapt 23% led by GENS and the North America operations while GENP (MP; TP: RM12.40) saw its Plantation earnings surged 163% thanks to higher FFB production by 29%, CPO prices by 34% and PK prices by 66%. Power earnings tripled to RM60.3m on lower construction costs incurred as the new Banten Plant completed just before end-1Q17 while Oil & Gas earnings jumped 50% on higher average oil prices.

Better outlook, as the business volume at GENS seems to have bottomed with improving numbers in the recent quarters. Meanwhile, 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. However, we remain neutral on plantation?s outlook.

Maintain OUTPERFORM. Although 1Q17 fell short of estimates, we keep our FY17-FY18 estimates unchanged as the weaker results were largely due to minority interest which we want to keep track in the next 1-2 quarters before revising. We also rolled over our valuation base year to CY18 from CY17 and updated latest target prices for GENM (MP; TP: RM6.00) and GENP as well as latest market prices for GENS and LANDMRK (Not Rated), with an unchanged 30% discount to its SoP valuation, our new target price for GENTING is RM11.30/share from RM10.19/share previously. Risks to our OUTPERFORM call include (i) decline in casino business volume coupled with poorer luck factor and (ii) decline in CPO prices.

Source: Kenanga Research - 30 May 2017