FY18 results matched expectations with meaningful recovery from Singapore while GENM started to reap fruit from the GITP expansion. All these will benefit GENTING. However, GENP was badly hit by continued soft CPO and PK prices, which saw its profit plunging 57%. Although share price moved up 20% YTD, GENTING’s valuation remains attractive trading below 10x PER. OUTPERFORM maintained at target price of RM7.95.

FY18 within expectations. 4Q18 core profit of RM695.0m met our expectations, which brought FY18 core profit to RM2.73b which came 2% above our forecast but beat consensus by 8%. It declared a total NDPS of 13.0 sen, which include 6.0 sen regular dividend and 7.0 sen special dividend, which is the same as 4Q17. YTD FY18 NDPS of 21.5 sen came above our forecast of 15.0 sen but the same as FY17.

Weaker casino earnings sequentially. 4Q18 core profit fell slightly by 1% QoQ to RM695.0m while revenue was largely unchanged. This was led by the decline in casino business where earnings for GENM (MP; TP: RM3.60) was hit by higher cost relating to the VIP business while GENS (Not Rated) was affected by provisioning. Meanwhile, despite stronger FFB growth, GENP’s (UP; TP: RM9.80) earnings plunged 52% as CPO and PK prices fell 10% and 16%, respectively. Meanwhile, earnings for Oil & Gas unit gained 5%, which was mitigated by 4% decline in Power earnings.

Malaysia operation led FY18 growth. 4Q18 core profit jumped 44% YoY from RM799.6m, largely attributable to the earnings recovery at GENS which saw its adjusted EBITDA growing 12% on 10% hike in VIP volume with better rolling chip win while earnings for Malaysia and UK & Egypt were mixed. However, earnings for plantation unit plummeted 53% as CPO and PK average prices tumbled 28% and 47%, respectively. YTD, FY18 core profit leapt 39% to RM2.73b which was largely driven by casino operations, especially in Malaysia while plantation earnings fell by a third on the abovementioned reasons.

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. Meanwhile, the North American operations should improve further as the new Resort World Bimini has shown improvement in recent quarters while the UK operations could be volatile due to its VIP-centric business profile while 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-3Q18 results, we raised FY19 estimates by 17% due to upward adjustment from GENM and GENS and earnings cut from GENP. Our SoP valuation is also increased to RM12.93 from RM12.24 following target prices updates for GENM and GENP while GENS and LANDMRK (Not Rated) are based on market prices. With unchanged 38.5% discount (3-year mean) to SoP valuation, our target price is upgraded to RM7.95 from RM7.55 previously. As such, we continue to rate GENTING an OUTPERFORM as it is the ultimate beneficiary for GENS earnings recovery, GENM expansion story and well as new Japan market expansion, if any. 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 2019