KUALA LUMPUR (Dec 2): CGS-CIMB Research has maintained its "Add" call on Genting Bhd at RM5.85 with a lower target price of RM7.80 (previously RM7.90) on a 30% discount to revalued net asset valuation.

In a note today, the research house reported that Genting's 9M19 core net profit was down by 5.3% year-on-year (y-o-y) at RM1.57 billion, mainly due to lower domestic gaming profits.

"Domestic leisure and hospitality profit before tax (PBT) declined 4.1% y-o-y to RM2.08 billion as non-VIP gaming volume declined 5% y-o-y, mainly due to fewer incentives provided by Genting Malaysia (GENM)," it said.

It noted that GENM had to cut down on its incentive due to the casino duty hike which started from January 2019 onwards.

"9M19 VIP business grew 10% y-o-y, mainly due to a high hold percentage in the premium market segment," CGS-CIMB added.

CGS-CIMB stated as operations were hit by a rise in payroll as the union seeks a pay hike every three years, its 9M19 US operations PBT only saw a growth of 4.8% y-o-y to RM224 million. It was, however, offset by smaller losses for the Bimini operations.

"9M19 loss was at US$13 million compared with US$24 million in 9M18," the research house noted.

It also noted that 9M19 UK revenue declined 7.4% y-o-y to RM1.25 billion, mainly due to a lower hold percentage in the VIP gaming segment, but 9M19 earnings before interest, taxes, depreciation and amortisation (EBITDA) gained RM51.5 million mainly due to the adoption of MFR18 for its leases and lower bad debts.

"Power division PBT was down 2% y-o-y at RM345.3 million, mainly due to contribution from the Banten Plant, but this was offset by impairment losses at the India power plants," it said.

"We cut FY19-21F EPS by 6.7-15.5% to reflect the lower domestic gaming profit, higher US payroll costs, weak UK gaming profit and potential losses from Empire Resort," it added, maintaining its "Add" call due to Genting's attractive valuation of 2020F 11.7x P/E.

"High win rates for the domestic and UK gaming divisions are a potential re-rating catalyst. Risks include delays in the opening of the outdoor theme park and weak gaming profits."