3Q17 results were only satisfactory as strong GENS’ earnings were offset by disappointing GENM results. We are not overly worried on weak GENM earnings, which were hit by luck factor. With improving GENS numbers and the GITP growth story at home, GENTING earnings are set to improve further. In addition, 2018 would be an exciting year given the new Japan market opportunity. It remains OUTPERFORM with revised price target of RM11.40/share.

3Q17 matched expectations. At 73%/63% of house/street’s FY17 estimates, the 9M17 core profit of RM1.41b came within our expectations but fell short of market consensus. The results came within our estimates because the strong GENS (Not Rated) earnings were offset by disappointing earnings from GENM (OP; TP: RM5.80). We believe it missed consensus as the market could have adjusted for the strong GENS’ earnings which were released two weeks ago. No dividend was declared as expected.

Flattish sequential results. 3Q17 core profit inched up 1% QoQ to RM519.0m, on the back of 2% hike in revenue, led by lower minority interest that was offset by higher taxation. Operationally, all business segments reported weaker earnings. Strong GENS’ earnings were offset by weaker RWG while GENP (MP; TP: RM10.30) earnings were lower, which was within expectations. Loss on impairment receivable from LKPL of India dampened power earnings while oil & gas results were hit by lower production despite higher oil prices.

Better yearly results. 3Q17 core profit jumped 17% from RM444.7m, on the back of 8% rise in revenue, largely driven by lower minority interest. Operationally, plantation earnings declined on lower FFB production in Malaysia while oil & gas also saw declining results. The rest of segments reported improved results. YTD, 9M17 earnings rose 4% to RM1.41b on the back of 8% hike in revenue as all business segments reported commendable results, especially GENS, which were helped by higher volume and lower impairment, and GENP on higher CPO prices and FFB production. However, earnings were capped by higher minority interest and taxation.

Better outlook, as we believe casino volume at GENS has somewhat bottomed out following the recovery in the past year. 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.

Retain OUTPERFORM. To reflect strong GENS’ results, disappointing GENM earnings and minor adjustment at GENP, we raised FY17/FY18 estimates by 4% each. Meanwhile, we also upgraded its Target Price to RM11.40 from RM10.95 with unchanged 30% discount to its SoP valuation following the strong GENS’ price performance and minor adjustment on GENM and GENP. New SoP is RM16.29/share from RM15.66/share previously. It remains OUTPERFORM as the key beneficiary of the recovery of GENS as well as the GITP expansion plan. Risks to our call include: (i) decline in casino business volume coupled with poorer luck factor, and (ii) decline in CPO prices.

Source: Kenanga Research - 24 Nov 2017