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Friday, November 25, 2016

Brokers Report: GENT - Attractive Valuations

Upgrade to OUTPERFORM from neutral call with revised target price (TP) of RM9.80

Genting Berhad (GENT) reported a 3Q16 net profit of RM577.2m, increasing by 60% YoY mainly due to lower fair value loss on derivative instruments and lower impairment losses. After stripping out these losses and other exceptional items, 9MFY16 core net profit accounted for 76% of our full-year estimates. 3Q16 adjusted EBITDA was down 12% YoY largely due to net foreign exchange losses on financial assets compared with net foreign exchange gain in the previous year recorded under the investments & others segment. At adjusted EBITDA level, most key segments posted higher contribution i.e. leisure & hospitality and plantation. Our SOTP-based TP is revised up from RM9.00 to RM9.80 due to the upward revision in our TP for Genting Malaysia (GENM) as well as a higher consensus valuation on Genting Singapore (GENS). Given the recent retracement in its share price, we now see value in GENT and hence, upgrade the stock call from Neutral to Outperform.
  • 3Q16 revenue was flattish. The group reported total revenue of RM4,683.7m, +0.8% YoY. Resorts World Sentosa (Singapore) recorded a 6% decline in revenue but this was offset by higher contribution from Malaysia, UK and US as a result of higher hold percentage and increase in business volume. Plantation revenue was up 29% YoY on the back of higher palm product selling prices despite lower FFB production. Meanwhile, power, property and oil & gas segments delivered lower revenue.
  • 3Q16 adjusted EBITDA declined by 12% YoY. Adjusted EBITDA was mainly dragged by the investments & others segment which reported net foreign exchange losses on financial assets compared with net foreign exchange gain in the previous year. Overall, leisure and hospitality posted a 19% growth in EBITDA due to better contribution from GENS and UK casino business (on lower bad debt recovery). GENS reported a stronger EBITDA owing to improved VIP win percentage.
  • Upgrade to Outperform. We believe the worst is over for GENS and it is poised for a recovery in earnings on the back of a lower impairment on trade receivables and improvement in the VIP business. We estimate that GENS would contribute 42% of the group’s EBITDA for FY17F. We raise our SOTP-based TP for GENT to RM9.80 after factoring in higher consensus valuation on GENS and the upward revision in our TP for GENM. Given an upside potential of 21.5%, we upgrade GENT from Neutral to Outperform. We believe the recent sell down on GENT was due to foreign investors exiting emerging markets in anticipation of US rate hike.

Source: PublicInvest Research - 25 November 2016

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