FY17 results came slightly below expectations but this is not alarming as the reason is non-operating in nature, while the total NDPS of 13.0 sen including special dividend declared in 4Q17 is a pleasant surprise. With improving GENS numbers and the GITP growth story at home, GENTING is expected to benefit further. It remains OUTPERFORM with revised price target of RM10.65/share.

FY17 slightly below. At 94%/93% of house/street’s estimates, the FY17 core profit of RM1.89b came slightly below expectations. The main deviation between our estimates and the actual results was solely because we expected a higher interest income of RM1.05b against the reported RM886.8m. Core operating numbers were fairly within expectations. It declared a total NDPS of 13.0 sen, including 6.0 sen regular and 7.0 sen special, in 4Q17, tallying FY17 NDPS to 21.5 sen, which was higher than our 15.0 sen assumption, against 12.5 sen paid last year. At regular basis, FY17 regular NDPS was 14.5 sen, in line with our forecast.

4Q17 sequentially weakened. 4Q17 core profit dipped 7% to RM482.6m, despite revenue rising 4%, largely due to higher MI by 32% or RM112.1m. Operationally, all business segment reported higher earnings such as its casino unit helped by strong GENM (OP; TP: RM5.80) earnings, GENP (OP; TP: RM10.60) boosted by FFB production, power segment helped by higher generation from Banten Plant while 3Q17 was hit by loss on impairment receivable from Lanco Kondapalli Power. Meanwhile, GENS (Not Rated) reported weaker earnings due to luck factor.

Mixed yearly results. While 4Q17 and FY17 core earnings fell 13% and 1% from RM554.2m and RM1.90b last year due partly to higher interest expense by 60% and 40%, respectively, at adjusted EBITDA level, almost all business segments reported improved results except plantation and oil & gas segments, which posted weaker earnings in 4Q17. Generally, the casino unit led by GENS saw higher business volume and lower impairment while GENM was hit by start-up cost at GITP in 3Q17. GENP witnessed higher FFB with slightly higher CPO price on full-year basis. The new Banten Plant droved power earnings higher while oil & gas segment was helped by the higher crude oil prices.

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 the 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. GENP’s outlook is improving as well.

Retain OUTPERFORM. While we keep FY18 forecast unchanged and introduce new FY19 estimates, we cut the target price to RM10.65 from RM11.40 based on an unchanged 30% discount to its SoP valuation following the decline of GENS share price and upgraded GENP’s target price. 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 - 28 Feb 2018