1H18 core earnings of RM1.33b beat estimates, largely due to a distortion caused by MI. GENS’ earnings were hit by luck factor, but business volume was still encouraging. GENM posted flattish earnings while GENP faced lower FFB production that suppressed earnings. We believe the recovery of GENS’ earnings is sustainable while the GITP expansion program has started to bear fruit. All these will benefit GENTING further. OP maintained at RM10.85.

2Q18 beat expectations. At 54% of house/street’s FY18 estimates, 1H18 core profit of RM1.33b came above expectations, largely due to lower-than-expected minority interests. At the operating levels, revenue and EBIT were fairly in line. It declared a 8.5 sen NDPS in 2Q18 (ex- date: 14 Sep; payment date: 12 Oct) which is the same as 2Q17.

But a weaker quarterly operationally. Despite a stronger bottom-line which was due to lower taxation and MI, 2Q18 revenue and adjusted EBITDA weakened. This was mainly due to weaker GENS (Not Rated) earnings due to unfavourablefactor,factor but business volume continued its upward trend. This saw GENS’ revenue and adjusted EBITDA falling 18% and 26%, respectively. While casino earnings from GENM’s (OP; TP: RM5.75) were fairly flattish, GENP (OP; TP: RM10.75) saw its plantation’s adjusted EBITDA falling 35% on lower FFB production. Property and Oil & Gas segments also posted declining profits while Power unit was the only outperformer with earnings rising by 27% to RM114.1m owing to higher net generation by the Banten Plant.

The yearly results were partly driven by foreign currency asset. 2Q18 core profit rose 16% YoY from RM588.6m largely due to a net forex translation gain of RM20.7m on net foreign currency denominated financial asset in 2Q18 from a loss of RM138.4m. Overall, all business segments reported lower EBITDA except Oil & Gas unit. YTD, 1H18 Core Net Profit jumped 39% to RM1.33b from RM0.96b on the back of 4% hike in revenue. This was attributable to higher casino earnings of 7% in all geographical aUK,as except UK which was due to lower revenue and higher debt written-off, as well as a 2% increase in Oil & Gas while Power unit posted 11% earnings growth.

A 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. Post-2Q18 results, we raised FY18 earnings estimates by 7.5% to solely account for lower MI while other key assumptions remain unchanged. There is no change in our FY19 estimates as well. We continue to like GENTING as 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 at 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 - 30 Aug 2018