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