ANTICIPATING Genting Malaysia Bhd’s (GenM) long-term prospects to be positive with an exponential year-on-year (yoy) profit growth in FY2022, Hong Leong IB (HLIB) Research has upgraded the resort-cum-casino operator to a “buy” (from “hold” previously).
Even with a 33% higher target price of RM3.55 (from RM2.67 previously), the research house caveated that GenM’s FY2021 performance could be weaker than expected in view of the ongoing inter-state travel ban on populous states like the Klang Valley, Johor and Penang.
“We now expect the inter-state travel ban to be in place for one more month and this would imply a footfall of less than 15% for a total of four months for Resorts World Genting (RWG) since the inception of MCO (movement control order) 2.0,” projected analyst Low Jin Wu in a company update.
Elaborating on its anticipated V-shaped recovery in FY2022, HLIB Research noted that this is in tandem with the timeline of vaccine roll-outs and its confidence that Malaysia will achieve some form of normalcy in FY2022.
“We believe that the public’s willingness to travel would be positively correlated with the vaccination rates in the country,” justified the research house.
Nevertheless, HLIB Research downgraded GenM’s FY2021 earnings from RM669 mil to a loss of -RM74.2 mil due to the longer than expected inter-state travel ban while leaving its FY2022 earnings assumption unchanged.
Looking into the future, the research house expects the SkyWorlds theme park to boost footfall into RWG. Slated to open by 1H 2021, SkyWorlds features nine movie and adventure-inspired worlds that will include 26 rides and attractions with more to come in the future.
“We believe that the main beneficiary from its SkyWorld theme park would be its casinos and occupancy rates for its hotels as families would frequent RWG more since it would be a place of attraction for both adults and kids,” added HLIB Research.
Meanwhile, CGS-CIMB Research sees potential downside risks of GenM’s further equity injection into loss-making Empire Resorts.
Thus far, GenM has invested RM1.47 bil (26 sen/GenM share) in Empire Resorts, giving it an effective circa 58% stake; and (ii) according to Spectrum Gaming, Resorts World Casino New York City’s (RWNYC) gross gaming revenues (GGR) could be cannibalised by 17-53% in FY2026F if the New York state issues 1-3 new downstate casino licences to other operators,” opined analyst Foong Choong Chen.
“The significant GGR dilution would hit RWNYC’s net profit and ultimately its contribution (45 sen/share) to GenM’s sum-of-parts (SOP) valuation.”
All-in, CGS-CIMB Research maintained a “hold” rating on GenM with an unchanged SOP-based target price of RM3.20.
At 9.20am, GenM was down 1 sen or 0.33% to RM3.03 with 1.31 million shares traded, thus valuing the company at RM18 bil. – April 14, 2021
