GENTING (FV RM12.30 - BUY) FY11 Results Review: Mild Headwinds

The group’s FY11  earnings  were in line with both consensus and our  full-year estimates, representing 98.9% and 99.9% of consensus and our full-year forecasts. Incorporating our recent fair value downgrade on Genting Singapore, we are revising downwards our earnings and SOP fair value for Genting Bhd from RM13.36 to RM12.30. Despite the recent earnings letdown from subsidiary Genting Singapore, we think that this has largely been priced into the group’s relatively attractive 13.1x FY12 PER  vs  its large-scale global casino peers’ more than 20x PER. Maintain BUY, at a SOP fair value of RM12.30.

In line. Genting Bhd’s FY11 core earnings were in line, representing 98.9% and 99.9% of consensus and our full-year forecasts respectively. Core earnings, EBITDA and revenue accelerated by 12.4%, 13.5% and 28.9% y-o-y respectively in FY11, with Genting Singapore being the single largest contributor at 69.7% of absolute y-o-y EBITDA growth. The group’s q-o-q performance was more subdued, with EBITDA up  3.9% as the lower plantation earnings (-13% q-o-q) and construction cost overruns from Resorts World at New York partially offset its gaming division’s 4% sequential earnings growth, which was largely driven by stronger luck factor at Genting Singapore.

Broad based y-o-y growth in most segments. The key drivers of FY11’s y-o-y earnings growth were: i) Genting Singapore: (+19% y-o-y and 4% q-o-q) on the back of a full FY11 contribution vs 10.5 months’ contribution in the previous corresponding period and a sequential recovery in win rates; ii) Genting Plantation: (+37% y-o-y but  -20% q-o-q) in tandem with strong FFB production growth and higher average y-o-y CPO prices but lower q-o-q, iii) Malaysian gaming op (+7% y-o-y), boosted by improved win rates and double digit growth in both mass and VIP gaming volume; and iv)  power division: (+16% y-o-y and +3% q-o-q),  as  more power  was  dispatched from its China power plant, and tariff adjustments. The oil and gas division continued to report a loss of RM66.9m.

Leisure, gaming contribute 85% of group EBITDA. Leisure and gaming remained the largest contributor  of  group earnings, with expectations of more growth following the completion of Genting Singapore’s Resorts World at Sentosa’s Western Zone by mid-2012 and a full-year maiden contribution from Genting Malaysia’s Resorts World New York racino in 2012. Given the group’s gross cash pile of RM13.2bn (with net cash of RM930m), expanding global footprint and hence branding, it is well placed to capitalize on casino acquisitions or liberalization opportunities globally.

Source: OSK188