Period 3Q12
Actual vs. Expectations Stripping out the EI, the 3Q12 core earnings
of RM697.7m came in within expectations. The YTD 9M12 core earnings of RM1.98b
accounted for 76% and 74% of our FY12 full year estimate and that of the market
consensus respectively.
Dividends No
dividend was declared as expected.
Key highlights The 3Q12 headline net profit plunged 48% QoQ to
RM279.4m due mainly to 1) a total of RM394.5m in impairment losses being
RM178.7m on its investment in Landmark
Bhd (NOT RATED), RM87.5m for Omni Center in Miami, RM102.2m for certain provincial
casinos in UK and 2) RM108.0m in assets written off at Genting Singapore’s
(“GENS,’ NOT RATED) level.
The adjusted EBITDA
hit a new low at GENS, falling 1% QoQ and 18% YoY to RM763.9m in 3Q12. This was
due to a lower business volume and a poorer luck factor as the revenue eased 3%
QoQ and 16% YoY respectively. The VIP volume contracted 3% QoQ and 20% YoY
while the rolling chip win was 2.8% in 3Q12 vs. 3.1% in 2Q12 and 3.17% in 3Q12.
Genting Malaysia
Bhd’s (“GENM,” OP, TP: RM4.18) reported core earnings which beat our estimate
on a lower-than-expected taxation charge. While the Malaysian operation was
mildly hit by a poorer luck factor as the adjusted EBITDA dipped 4% QoQ (+2%
YoY), the UK casinos were hit hard by its VIP segment and higher bad debts,
turning the EBITDA position into a loss of RM13.8m. However, the US racino remained
strong with its adjusted EBITDA inching up 1% QoQ.
Despite CPO prices
contracting 11% QoQ, a strong FFB volume (+38% QoQ) pushed Genting Plantation
Bhd’s (“GENP”, UP; TP: RM8.30) earnings
higher. The 3Q12 adjusted EBITDA for the plantation segment surged 35% as its
revenue rose 14% over the quarter. In 3Q12, the average CPO selling price slid
11% to RM2,858/mt vs. RM3,206/mt in 2Q12 while the palm kernel average price
fell 19% to RM1,534/mt from RM1,890/mt previously.
Its Power segment
registered a 3Q12 adjusted EBITDA, which jumped 18% QoQ and 19% YoY to
RM167.6m, thanks mainly to a higher generation by the Meizhou Wan plant in
China. Our results table have been adjusted to include the Malaysian IPP which
GENT had already classified as a discontinued operation.
Outlook Although 4Q is traditionally a strong
quarter due to seasonal factors, GENT’s outlook would be bad in 4Q12 given the
continued weak results from GENS coupled with the lacklustre prospect for CPO
prices that will cap the performance of GENP.
However, GENM should
enjoy higher earnings on a resilient RWG earnings and a full year earnings impact
from RWNYC. Nonetheless, the earnings from Genting UK could be volatile.
Change to Forecasts We have cut our FY12-FY14 estimates by 4%-13%
mainly due to our downgrades in 1) GENS estimates on lower assumptions for its
rolling chip volume and non-rolling chip drop; and 2) GENP estimates on lower
assumptions for CPO and FFB; 3) the removal of its Malaysian IPP earnings as
the disposal was completed on 22 Oct 2012.
We have trimmed our
RWS assumption of the win per table for VIP to SGD17,000, SGD17,340 and SGD17,687
for FY12-FY14 from SGD24,000, SGD26,500 and SGD24,970 previously, and for
non-VIP to SGD5,000, SGD5,100 and SGD5,202 from SGD6,000, SGD6,120 and SGD6,242
previously.
We already downgraded
our CPO price assumptions yesterday to RM2,900/mt for FY12 from RM3,150/mt,
RM2,850/mt for FY13 from RM3,100/mt, and RM2,850/mt for FY14 from RM3,100/mt previously.
Likewise, the average FFB price has been lowered to RM580/mt, RM559/mt and RM559/mt
for FY12-FY14 from RM698mt, RM694mt and RM692mt previously.
In view of the
lower-than-expected taxation at GENM, we have also lowered our effective tax
rate assumption to 23% in FY12 from 25% at GENT’s level but are keeping our
FY13-FY14 assumption unchanged at 25%.
We are keeping all
other key assumptions unchanged.
Rating DOWNGRADE TO MARKET PERFORM
Valuation Our new price target is now at RM9.59share
from RM10.09/share based on an unchanged 20% holding company discount to its
SOP valuation. The adjustment is mainly due to 1) the change in the price
target for GENP and the market share prices of GENS and Landmarks Bhd (NOT
RATED); and 2) the removal of its Malaysian IPP valuation. We have applied a
higher 20% discount vs. the usual 10% holding company discount due to the
lacklustre outlook for its main earnings contributor, i.e. GENS.
Given the limited
upside to our target price, we are downgrading GENT to a MARKET PERFORM.
Risks Poor luck
factor.
A sustained decline
in CPO prices
Source: Kenanga
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