Genting’s (GENT) 1HFY13 core earnings of MYR984.5m were within the MYR930m-990m  estimate  we  highlighted  in  our  14  Aug  2013  results preview. Following our earnings revisions for its listed subsidiaries, we reduce  our  earnings  estimates  by  0.3-3.7%  for  FY13F-15F.  Our  new SOP-based  FV  is  now  slightly  lower  at  MYR10.33  (vs  MYR10.35). Upgrade to BUY on account of the stock’s recent price weakness.

- Subpar  numbers.  The  1HFY13  revenue  of  MYR8.59bn  (-3.8%  y-o-y) and  core  earnings  of  MYR984.5m  (-14.5%  y-o-y)  were  within  our expectations but only made up 45.3% of consensus’ full-year estimates. This was despite 1H being the seasonally stronger half. Weakness at its Singapore  and  UK  operations  due  to  subpar  VIP  hold  rates  and  higher bad  debt  provisions  respectively  contributed  to  the  11.5%  y-o-y  decline in  contribution  from  its  gaming  segment.  2QFY13’s  revenue  of MYR4.46bn  and  core  earnings  of  MYR553.6m  were  decent improvements sequentially but still 1.1% and 10.6% lower respectively y-o-y due to overall weakness at the group’s gaming operations.

- Dividend  reinvestment.  Management  declared  a  special  gross  interim DPS  of  50  sen.  This,  however,  is  conditional  upon  the  proposed issuance  of  warrants  at  a  ratio  of  1-for-4  at  an  issue  price  of  MYR1.50 per  warrant,  convertible  over  a  5-year  period.  Ultimately,  investors  can choose to walk away with the special dividend or “reinvest” their share of dividends  in  these  warrants.  Based  on  the  indicative  exercise  price  of MYR7.96, we estimate that the warrants issuance could potentially raise MYR7.35bn  upon  full  conversion.  Cash  at  the  company  level  currently amounts  to  about    MYR1bn,  which  can  be  utilised  to  fund  its  future expansion.    

- Upgrade  to  BUY.  Following  our  earnings  revision  at  Genting  Malaysia (NEUTRAL;  FV:  MYR3.92)  and  Genting  Plantation  (NEUTRAL;  FV: MYR9.26), we accordingly reduce our core earnings estimates for GENT by  0.3-3.7%  for  FY13F-15F.  Our  SOP-based  FV  is  now  lower  at MYR10.33.  Nonetheless,  we  are  upgrading  our  call  to  BUY  (from Neutral)  given  the  recent  weakness  in  its  share  price.  That  said,  we advise  investors  to  subscribe  for  the  warrants  to  capitalize  on  potential capital gains upon recovery in its share price.

Source: RHB