Review

• Genting’s headline profit of RM2.1bn for FY16 was boosted by one-off disposal gain from selling Genting Hong Kong shares by Genting Malaysia (GENM). Excluding this and other exceptional items, FY16 core profit of RM1.9bn was 12% higher than our forecast and consensus estimates. For this quarter, Genting proposed a special dividend of 6.5sen/share and a final dividend of 6.0sen/share, bringing the total FY16 dividend to 12.5sen/share or a yield 1.4%.

• FY16 core profit increased by 28.2% YoY to RM1.9bn. This was underpinned by higher business volumes from all gaming units except Singapore operations. For non-gaming divisions, the plantation units also contributed to earnings growth in for FY16 with EBITDA growth of 73.3%.

• GENS’s FY16 adjusted EBITDA declined by 15.2% to S$775.8mn on the back of 7.2% decline in revenue. The dismal performance was due to weak 1H16 results when earnings were affected by the decline in VIP volume. However, toward 2H16, EBITDA recovered on the back of costcutting measures implemented in 2Q16. (see GENT report dated 23 February 2017)

• GENM’s FY16 core profit advanced by 39.6% driven by: 1) turnaround in UK operations; 2) increased contribution from US and Bahamas and net reversal of over-accrued expenses, where US operation EBITDA increased by 70%. Malaysia operations remained resilient with respective 0.8% and 0.6% growth in revenue and EBITDA for FY16. (see GENM report)

Impact

• We raise GENT’s FY17-18 earnings projections by 2.6% and 1.0% respectively after incorporating its subsidiaries’ unaudited earnings into forecasts.

Outlook

• Management reiterated that the capital commitment to Resorts World Las Vegas project is US$3bn. Of this, approximately US$1.5bn will be funded via equity funding from GENT. The construction of the project is expected to begin in 2H17 and it would take around 2.5-3 years to complete the project.

Recommendation

• We upgrade GENT’s target price to RM10.34 (from RM9.25 previously) after revising our DCF valuation on Genting Singapore higher by 25% to reflect the favourable sentiment on the lottery effect if GENS win a casino licence in Japan. Also, we change Genting Plantation’s valuation to PE multiple approach (from DCF) and raise GENP’s valuation higher by 23%. We also factor in the upgrade in GENM target price following the release of 4Q16 results. Maintain Buy.

• Looking back to 2005-2006 before Vegas Sands and GENS were awarded the casino licences in Singapore, casino operators who bid for the licences traded at high average forward PE of 24x CY06 EPS. We believe the history would repeat and the new casino licence in Japan would boost investors’ appetite for gaming stocks.

Source: TA Research - 24 Feb 2017