While 2Q18 earnings matched expectations, the higher dividend pay-out was a pleasant surprise. Overall, results are fairly well on track while the GITP expansion program has started to bear fruits. Nonetheless, we were disappointed again as the opening of 20th Century Fox World Theme Park is delayed again, to 1H19 from this year end. We continue to rate GENM an OUTPERFORM at target price of RM5.75/SoP share.

2Q18 within expectations. 2Q18 results came in-line with estimates, with core profit rising 20% sequentially to RM448.3m, bringing 1H18 core earnings to RM820.5m which accounted for 51%/50% of house/street’s FY18 estimates. A 6.0 sen interim NDPS was declared in 1H18, (ex-date: 14 Sep; payment date: 10 Oct) which topped our projection, higher than 4.0 sen paid in 1H17.

Strong sequential results helped by USD-denominated assets. With only 1% increase in revenue, 2Q18 core profit leapt 20% QoQ from RM372.2m largely due to RM41.1m adjusted EBITDA for investments and other segment 2Q18 as compared to adjusted LBITDA of RM36.0m in 1Q18. This was due to forex translation gain on its USD denominated assets on the strengthening of USD against MYR in 2Q18. Operationally, the North America operation was the top performer with earnings rising 20% to RM77.6m from RM64.8m on lower opex while earnings for the Malaysia unit inched up slightly by 1%. UK casinos posted flattish earnings to RM29.5m from RM30.6m.

Home turf operation led the YoY earnings. The effect of GITP expansion program continued to be felt in this set of results, which saw 2Q18 and 1H18 revenues rising 6% and 7%, respectively. As such, this also helped to improve core profits by 65% and 33%, respectively, alongside with the forex translation gain mentioned above. In addition, the local unit also enjoyed improved hold percentage in the mid-to- premium segment. Meanwhile, the UK & Egypt unit posted lower adjusted EBITDA by 17% in 2Q18 and 47% in 1H18 largely due to higher debt written-off and lower revenue. Meanwhile, the North America unit reported 16% contraction in 2Q18 earnings due to lower revenue by 10%. However, in 1H18, North America posted 6% increase in earnings despite revenue dropping 10% as the Bimini operations reported lower operational loss arising from cost rationalisation initiatives.

GITP is the key focus going forward, but the main attraction - 20th Century Fox World Theme Park’s opening is delayed yet again, to 1H19 from this year-end. Meanwhile, the RM10.38b 10-year GITP development has been progressively opening retail spaces, restaurants and casino floor since end-2016, which should contribute to bottom- line. Going forth, we remain cautious on the VIP-centric UK operations, which could be volatile while the Resort World Birmingham may need some time before showing meaningful results. Meanwhile, RWNYC numbers should be sustainable while Resort World Bimini is striving to be profitable by year-end.

Maintain OUTPERFORM. Post-2Q18 results, we keep our FY18-FY19 earnings estimates unchanged but raised NDPS for both years to 12.0 sen from 9.0 sen previously given the higher pay-out trend since 2016 as earnings improved. We also maintain our target price of RM5.75/SoP share. It remains an OUTPERFORM on the premise of earnings growth story from GITP expansion. Risks to our call include poorer luck factor and weaker casino earnings.

Source: Kenanga Research - 30 Aug 2018