1Q18 core profit of RM644.1m beat expectations. In fact, this is the strongest quarterly results in five years and we believe the recovery of GENS’ earnings is sustainable. In addition, the GITP expansion program has started to bear fruit. All these will benefit GENTING further. It remains OUTPERFORM with revised price target of RM10.85/share.

1Q18 topped expectations. The 1Q18 results beat estimates with core profit of RM644.1m making up 27%/26% of house/street’s FY18 estimates. This was due to stronger earnings from GENS (Not Rated) on Chinese New Year-led business volume and higher win rate, despite disappointing GENM’s (OP; TP: RM5.75) results on weaker UK operations. There was no dividend declared in 1Q18 as expected as it usually pays half-yearly dividends.

Strong results from GENS. Despite flattish top-line, 1Q18 core profit leapt 33% QoQ to RM644.1m from RM482.6m previously. This was led by GENS, which saw its adjusted EBITDA jumping 35% to RM1.08b thanks to the abovementioned high business volume and win rate. However, this was offset by lower earnings from GENM. GENP’s (OP; TP: RM10.75) plantation unit reported lower earnings by 3% on lower FFB production and CPO prices. Oil & Gas unit posted higher earnings by 26% on the back of oil price recovery while Power earnings dropped by 27%.

Overall a better result than last year. Except the UK casino operations which was hit by poor luck factor and lower volume, all business segments reported improved results, GENS’ earnings in MYR terms grew 21% on improved volume and luck factor while GENM’s results were helped by better business volume at home from the mass to premium markets. The Plantation unit reported higher adjusted EBITDA by 5% which was led by Malaysia plantation while Power earnings jumped 49% on the new Banten Plant and Oil & Gas earnings was helped by higher oil prices.

Better outlook, as we believe casino volume at GENS has somewhat bottomed out following the recovery in the past year. Meanwhile, we are 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 should also expect strong FFB production growth from its new acquisition in Indonesia and increasing mature area.

Maintain OUTPERFORM. Following the strong GENS’ earnings and weaker UK numbers, we have fine-tuned FY18/FY19 estimates upwards by 4.7%/0.3%. We also revised our target price to RM10.85 from RM10.65 based on unchanged 30% discount to its SoP valuations with a new valuation base year of CY19. We believe that it is the key beneficiary of the recovery of GENS as well as the GITP expansion plan. Thus, we continue to rate the stock an OUTPERFORM. 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 - 25 May 2018