The group reported earnings which were below both consensus
and our full-year estimates, owing largely to weaker hold percentages for both
its Malaysian and Singaporean gaming operations. We have toned down our
earnings forecast while revising downwards our SOP FV for Genting Bhd from
RM12.30 to RM11.62 after nudging down our
FVs for Genting Singapore, Genting Malaysia and Genting Plantation.
Maintain BUY with a revised FV of RM11.62.
Slightly below.
Genting Bhd’s annualized 1QFY12 core earnings made up 21.9% and 21.5% of
consensus and our full-year forecasts respectively. Core EBITDA and earnings declined
25.3% and 37.2% y-o-y respectively.
All segments report
lower performance. Given that gaming contributes to a significant 86% of
the group’s operating earnings, its performance was naturally dragged down by its
two key operating units – Genting Malaysia and Genting Singapore. The group’s lower-than-expected
core earnings were essentially a reflection of:
(i) Genting Singapore’s 33.2% decline in 1Q12 core earnings as a result
of a 14% drop in VIP volume and a lower VIP hold percentage of 3.4% vs 3.8% in
1Q11, and (ii) a
19.8% decline in Genting Malaysia’s core earnings as a result of lower
hold percentages from the Malaysian gaming business, lumpy RM39.6m gaming bad
debt provisions from its UK casino
operations and higher promotional expenses from Resorts World at New York. That
said, the 28% y-o-y decline in Genting Plantations’ 1QFY12 earnings on the back
of higher than expected fertilizer and labor costs also contributed to the drag
in overall group earnings. The power division was also not spared, reporting a 40% y-o-y decline
in earnings as a result of lower power dispatch by its Meizhou Wan power plant in
China which could be partially
attributed to the high base effect of 1QFY11
that incorporated a lumpy fuel pass-through compensation.
Medium-term notes
explained. The group had recently announced the establishment of a
10-year medium-term notes (MTN)
with an aggregate nominal value of up to RM2.0bn. Management indicated
that this was intended to lock in relatively attractive long-term
financing costs without really
allocating the funds to any immediate-term investments, apart from
utilizing a portion of the amount raised
to redeem part of its existing USD314m bonds expiring in 2014. We believe that
the group will ultimately allocate a large portion of the funds raised to
support future gaming ventures of its subsidiaries, which are expected to be
significant given the scale of the CAPEX required for integrated resorts. We
note that its CAPEX-intensive power business could be largely project financed
against the long-term contractual cash flows of the IPP agreements. More
importantly, with the group’s net gearing remaining relatively healthy at 10.3%
even after raising the RM2bn MTN, it can well afford to digest higher gearing
levels while optimizing its balance sheet to drive a more aggressive growth
plan.
Source: OSK
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