The disappointing 4QFY19 results were largely distorted by MI while GENM and GENS also reported weaker earnings on hold percentage. GENP is the only bright spot with earnings almost doubling thanks to better CPO prices. Going forth, the ongong deadly Covid-19 is a major sentiment dampener. On the other hand, we believe GENTING is still a key beneficiary of earnings recovery in GENS, GITP expansion story and new market in Japan. Keep the stock as OP for its deep valuation at revised target price of RM6.65.

FY19 results below. At 92% of our estimate, FY19 core profit of RM2.38b missed our expectation but met market’s at 101%. The weaker-than-expected results were mainly attributable to higher MI by RM139.6m. It declared a special NDPS of 9.5 sen (ex-date: 13 Mar; payment date: 09 Apr) and proposed a final NDPS of 6.0 sen all in 4QFY19, totalling FY19 NDPS to 22.0 sen vs. 21.5 sen in FY18 which was inclusive of 7.0 sen special NDPS and our estimate of 15.0 sen.

Sequential results were hit by hold percentage at home. While revenue was flattish at RM5.30b, 4QFY19 core profit thumped down 20% QoQ to RM487.6m which was partly due to low contributions from GENM’s RWG on lower hold percentage. Higher GENS’ earnings were due to luck factor. Meanwhile, GENP’s adjusted EBITDA jumped 90% to RM122.2m due to better palm products prices and high sales volume while Power earnings fell 20% to RM108.3m.

Weaker YoY results across the board. YoY, 4QFY19 core profit fell 30% from RM695.0m albeit on the back of flattish revenue. This was led by earnings from casino especially GENM as its adjusted EBITDA declined 23% due to the 10% hike in casino tax. Meanwhile, GENP’s plantation earnings jumped 66% QoQ to RM73.4m due to better CPO prices. YTD, FY19 saw its earnings fell another 13% to RM2.38b which was led by casino operators on luck factor while plantation posted better results on higher CPO and PK prices.

Tough quarters ahead. The on-going deadly Covid-19 outbreak is disrupting business activities in the region which affects the regional casino operators badly and GENM and GENS are not spared Meanwhile, the North American operation should improve further as the new Resort World Bimini has shown improvement in recent quarters while the UK operation could be volatile due to its VIP-centric business profile. However, improving CPO outlook should augur well for GENP.

Keep OUTPERFORM for deep valuation. Post-4QFY19 results, we cut FY20 estimates by 27% to adjust for GENM and GENS’s earnings in view of the Covid-19 outbreak. We also cut our target price to RM6.65 from RM7.00 as holding company discount to its SoP valuation is raised to 45.1% from 42.4% based on unchanged moving 3-year average. Currently, the stock trades at an attractive forward PER of 55.7x which is in line with -2.0SD of 3-year average. All in, we maintain our OUTPERFORM rating. Risks to our call are: (i) decline in casino business volume, (ii) poorer “luck factor”, and (iii) weaker CPO prices.

Source: Kenanga Research - 28 Feb 2020