The  impact  of  a  potential  casino  tax  hike  in  Malaysia  on  Genting (GENT)’s  earnings  would  likely  be  muted  given  its  relatively  more diversified  earnings.  Our  sensitivity  analysis  shows  that  a  1%  hike  in casino  tax  could  translate  into  1.0-1.2%  earnings  downside  for  GENT. Downgrade  to  NEUTRAL  on  account  of  recent  strength  in  its  share price, with a new SOP-based FV of MYR10.70 (from MYR10.33).

- Muted  impact.  GENT’s  Singapore  gaming  operations  are  now  the largest  profit  contributor  at  43.7%  -  or  MYR3.21bn  -  of the group’s 1HFY13  consolidated  core  EBITDA,  followed  by  its  Malaysian operations,  at  36.5%.  Thus,  should  Malaysia  raise  its  casino  tax,  the impact  on  the group’s earnings  would  be  relatively  muted  vs  Genting Malaysia  (NEUTRAL,  FV:  MYR4.11).  Based  on  sensitivity  analysis,  we estimate  that  a  1%  casino  tax  hike  may potentially pare down GENT’s earnings by 1.0-1.2%, vis-à-vis 2.4-2.5% for Genting Malaysia.

- Dividend  surprise  shores  up  share  price.  The  stock’s sharp  price decline to a low of MYR9.17 from a high of MYR11.10 due to a selldown in  2Q13  was  arrested  after  management  declared  a  special  DPS  of  50 sen.  GENT’s share price has surged  8.2%  since  we  upgraded  our recommendation at the end of August.   

- Moving into seasonally weaker 2H. Going forward, we believe GENT’s 2HFY13  outlook  will  largely  depend  on:  i)  the  Singapore  casino operation’s VIP  segment,  which  underperformed  in  1HFY13  owing  to subpar luck factor, and ii) its Malaysia and UK segments, whose 1HFY13 results  missed  expectations  due  to  unexpectedly  high  operating expenses  and  debt  provisions.  Meanwhile,  the  still-weak  crude  palm  oil (CPO) price worked against its plantation division, which contributed only 3.1% of 1HFY13 group core EBITDA, down from 5.3% in 1HFY12.  

- Downgrade  to  NEUTRAL.  Following  our  FV  revision  on  GENT’s listed subsidiaries,  we  adjust  our  SOP-based  FV  higher  to  MYR10.70  (from MYR10.33).  However,  since  the  recent  strengthening  in  its  share  price has  left  little  upside  to  our  recommendation,  we  downgrade  our  call  to NEUTRAL.

Source: RHB