The group reported earnings which were below both consensus and our full-year estimates, dragged down by poor performance by Genting Singapore and Genting Plantation. We are toning down our earnings forecast while revising downwards our SOP FV for Genting from RM11.62 to RM10.08 after revising lower our FV for Genting Singapore. Maintain BUY, with a revised FV of RM10.08.
Below estimates. Genting Bhd’s annualized 1HFY12 core earnings made up 38.8% and 41.1% of consensus and our full-year forecasts respectively. 1HFY12 core EBITDA and earnings declined 14% and 29% y-o-y respectively, which was largely expected since Genting Singapore recently reported 1HFY12 earnings that were 19% below expectations. Given Genting Singapore’s substantial 40% earnings contribution to group earnings, its underperformance was the key drag on Genting group earnings. Following our recent downwards earnings revision for Genting Singapore, we have correspondingly nudged down our earnings estimates for Genting Bhd by 13.7% and 17.3% respectively for FY12 and FY13.
Genting Singapore, Plantation the main drags. The group’s lower-than-expected core earnings essentially reflect: (i) Genting Singapore’s 28.6% decline in 1H12 core earnings as a result of a 14% drop in VIP volume and a lower VIP hold percentage, and (ii) a 42% slide in plantation earnings via Genting Plantation, which was impacted by a 13.2% drop in FFB production as well as weaker CPO prices.
Strong sequential recovery at Genting Malaysia. Genting Malaysia reported a sterling 90% q-o-q recovery in 2Q12 earnings despite slower q-o-q domestic VIP volumes as the group benefited from stronger win rates from both its Malaysian and UK gaming operations. This was also attributed to the fact that in 1Q12 it was impacted by lower domestic gaming win percentages. Its UK gaming operations also performed well, registering EBITDA growth ballooning by 278% q-o-q and 141% y-o-y. The casino attendance growth of 6% and strong win rates boosted the momentum. Its US racino operations, meanwhile, reported 22.4% q-o-q growth in operating earnings on the back of a 5% improvement in average win/machine/day to USD375. Given the relatively impressive earnings delivery from its foreign gaming operations in UK and US, the group’s domestic gaming profit contribution was diluted to 75% in 2Q12 and 82% in 1HFY12 vs 90% in 1Q12.
Power division earnings down on high base effect. Power earnings declined 20% y-o-y, partially attributed to the high base effect of 1QFY11, with its China power plant benefiting from a lumpy fuel pass-through compensation.
Source: OSK
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