Genting - BUY - 29 Aug 2008

Genting - 1H08 within expectation (Results Note)



Price: RM5.30

Target Price: RM9.00

Recommendation: BUY



· 1H08 revenue at RM4.3b was within expectation while core net profit of RM699.1m was 44.2% and 42.1% of our forecast and street's estimates respectively which we consider in line given group's weaker seasonality for 1H. Growth was across all divisions except for power due to scheduled maintenance in 2Q08. A 3.0sen gross dividend was also declared against the 2.7sen previously.

· QoQ, revenue flat while EBITDA slipped 5.5% mainly due to lower power contribution and other forex losses. Lower power contribution due to higher coal cost (+30% qoq) and lower dispatch on scheduled maintenance for both Kuala Langat and Meizhou Wan plants.

· YoY, 1H08 revenue and EBITDA climbed 7.8% and 6.8% respectively, underpinned by: a) better luck factor for VIP and higher casino patronage for the highlands; b) higher plantation contribution courtesy to buoyant CPO price; c) higher average oil price sales recorded by the O&G division; and d) absence of associate loss from Star Cruises. Pre-tax however fell 23.4% to RM1.6b as there was less recognition of gain on dilution (-96.4%) on shareholdings.

· Resorts updates. Though visitor arrivals for 1H08 was down by c.4% yoy, higher performance was driven by increased casino patronage in both VIP and grind market. 1H08 hotel occupancy also climbed to 90% vs 86% in 1H07 while average room rate increased by c.6%. Both theme park and F&B also registered positive 1H08 sales growth on increased patronage. Apart from sales growth, better margin was also experienced as a result of reduced marketing costs as group directs more marketing efforts to its' WorldCard members as part of its yield management strategy instead of attracting new visitors.

· Though we continue to be positive on Resorts (BUY; TP:RM4.38) for the rest of 2008, Genting's near term performance is likely to weaken on the back of: a) lower plantation performance given the recent sharp correction in CPO price; and b) margin squeeze on power division with higher coal cost for Meizhou Wan power plant and windfall tax payment (RM5.7m/month) for Genting Sanyen. Incorporating higher operational cost assumptions of Resorts (1%-4% staff and energy costs) and the reduced profit contribution from power and plantation, we lower our FY08 and FY09 net profit projections by 6.4% and 20.1% respectively to RM1478.6m and RM1345.0m. BUY maintained but lower target price to RM9.00 from RM9.90 based on sum-of-parts.