Genting Berhad’s (GENT) 52%-owned subsidiary, Genting Singapore (GENS), reported strong FY16 core earnings of S$281.9mn (5.4% YoY), which beat consensus estimates. The decent FY16 earnings performance was largely due to cost-cutting measures implemented in 2Q16. We maintain Genting’s FY16-18 earnings, pending the release of Genting Malaysia results today. Maintain Buy on Genting with unchanged target price of RM9.25.

Financial & briefing highlights

• GENS’ 4Q16 earnings continued to see higher EBITDA growth despite marginal increase in revenue, indicating the effectiveness of cost-cutting measures implemented in 2Q16 in supporting earnings growth. 4Q16 adjusted EBITDA grew as much as 28.9% YoY to S$233.7mn whereas revenue increased by only 1.9% YoY to S$557.7mn. For this quarter, VIP win percentage moderated to the normal 2.8% level.

• Non-gaming revenue declined 2.0% to S$637.5% for FY16. Nonetheless, the group still recording strong daily average visitation of 18,000 while the hotel segment continued with higher occupancy rate of 92%. The average tourist’s spending was S$80.

• For this quarter, the group declared dividend of S1.5cent/share, bringing FY16 total dividend to S3.0cent/share. Looking forward, we can expect the similar dividend to be paid in the future.

• On the Japan front, GENS agreed that the integrated development would cost between US$7-12bn. Land alone would cost a whooping US2-3bn based on the company’s recent surveys. However, management believes that the next debate will not be held anytime until Sep-Oct 17.

• Sitting on a cash pile of S$5bn and borrowings of S$3.5bn, where the bulk of the borrowings are perpetual securities (67%), GENS is in a good financial position in contending for a casino license in Japan. According to management, a project IRR between 10% and 15% is required considering all factors including political risks. Management also hinted that the project is still viable even without a controlling stake in the JV but it will be infeasible with a stake as small as 10%.

Forecast

• We keep our Genting Berhad’s FY17-18 earnings unchanged as GENS’ FY16 profit after tax accounted for 97% of our forecast.

Recommendation

• Maintain GENT’s target price at RM9.25/share with unchanged 10% holding company discount on the group’s SOP valuation. Maintain Buy on Genting. Note that YTD, the stock has advanced 11.8% to close at RM8.94.

Source: TA Research - 23 Feb 2017