Genting - BUY - 30 May 2008

Genting - 1Q08 in line (Results Note)



Price: RM5.85

Target Price: RM9.90

Recommendation: BUY



· 1QFY08 revenue of RM2.2b was in line while core net profit of RM439.4m was 27.8% of our forecast and 26.6% of street's consensus. All major divisions registered positive growth except leisure which was dragged by slower UK gaming operation.

· QoQ, group revenue and EBITDA slid 3.8% and 1.8% respectively on seasonality as earnings for both Resorts and Asiatic are usually slower in first half before peaking in the second half.

· YoY, 1Q08 revenue increased 6.6% but normalised pretax jumped 31.8%, underpinned by: a) higher plantation contribution (+131.0% yoy) on buoyant CPO price; b) increased power contribution (+6.7% yoy) courtesy to the tariff hike for Meizhou Wan plant; and c) absence of associate losses following Resort's disposal of StarCruises with a mere 19.6% stake. Pretax from leisure however fell 8.8% on the back of a challenging operating environment in UK which were affected by higher gaming duty and lower patronage as a result of the smoking ban.

· No confirmation on the speculated power asset sales but we believe this could be another strategic move for the group to unlock value. We conservatively estimate group's powers plants to be worth at least RM3b based on DCF valuation (WACC=12.0%). Net cash should increase to RM12b or RM3.20/share should the sale crystalised.

· Maintain forecasts and BUY recommendation with an unchanged target price of RM9.90. Genting is currently trading at an undemanding FY08 PER of 13.7x versus regional average of 33x, a huge 42% discount.





KENANGA INVESTMENT BANK BERHAD (15678-H)