Genting’s  1QFY13  core  earnings  of  MYR430.9m  fell  short  of expectations due to  weaker  than  expected showing  from  its Malaysia, Singapore as well as UK  casino  operations. We cut  our FY13  and FY14 estimates accordingly by  12.0%-14.0%.  We also take the opportunity to introduce  our  FY15  forecast.  Downgrade  to  NEUTRAL,  with  a  lower SOP-based FV of MYR10.66 from RM11.32 previously. 

- Disappointing  start.  Genting  (GENT)’s  1QFY13  revenue  eased  to MYR4.1bn  (-6.6%  y-o-y;  -8.0%  q-o-q),  with  its  core  earnings  of MYR430.9m (-25.6% y-o-y; -83.2% q-o-q) accounting for a disappointing 17.3%  of our  and 18.5%  of  consensus full-year estimates. We attribute the underperformance to  the  lower hold rates  registered  in Singapore as well as weaker  than  expected contribution from its UK casinos  owing to lower patronage as well as volume.  Its Malaysia  gaming  operations also saw profits decline due to higher promotion expenses incurred during the quarter  while  contribution  from  its  plantation  segment  remained  weak due to soft crude palm oil (CPO) prices. 

- Revising earnings. We cut our FY13 and FY14 core earnings estimates by  12.0% and 14.0% respectively as  we  take a more cautious stance in view  of  the  results  shortfall.  We  tweak  our  margins  assumptions  for GENT’s Malaysia gaming operation in view of the higher opex, as well as our lower volume and margin estimates for its UK operations. We believe Resorts World Singapore’s more risk-averse stance in expanding its VIP segment  may  lead  to  slower  growth  in  the  near  term.  Meanwhile,  we take  the  opportunity  to  introduce  our  FY15  forecast,  with  our  core earnings estimate at MYR2.6bn.

- Downgrade to NEUTRAL.  In view of  its  recent share price appreciation and following our earnings revision, we downgrade our recommendation to  NEUTRAL.  Our  SOP-based  FV  now  stands  at  MYR10.66  vs MYR11.32  previously.  The  stock’s  key  re-rating  catalysts  include potential  awards  of  new  casino  licences  in  New  York  as  well  as  the potential passing of a gaming bill in the state of Florida. In the meantime, we  will  await  more  details  on  its  proposed  venture into  the  Las  Vegas gaming scene.

Source: RHB