RESORT-oriented Genting Malaysia Bhd is under duress with its losses expected to widen this year, no thanks to the extended full movement control order (FMCO).
In fact, CGS-CIMB Research has raised Genting Malaysia’s FY2021F core net loss by 64% to RM1.39 bil (FY2020: -RM1.26 bil) after factoring in the potential closure of Resorts World Genting (RWG) from June 1 to mid-November 2021 under the FMCO.
“We have assumed RWG re-opens in Phase 4 when all economic sectors resume and more social activities are allowed, including inter-state travel and domestic tourism,” projected analyst Foong Choong Chen in a company update.
“RWG’s losses are partly buffered by lower depreciation and interest expenses related to the delayed opening of SkyWorlds in mid-November (previous: mid-2021).”
As a result, the research house has slashed Genting Malaysia’s FY2022F core earnings per share (EPS) by 15% as it assumed RWG’s business to be 10-20% below pre-COVID-19 levels in 1H 2022F with full recovery in 2H 2022F.
“We see DPS (dividend per share) back at 20 sen (pre-COVID-19 level) only in FY2023F,” opined CGS-CIMB Research.
To mitigate its dire financial situation, the research house noted that Genting Malaysia may need (i) to raise RM500 mil to RM1 bil of new debt to fund FY2021F’s free cash flow (FCF) of -RM1.4 bil; and (ii) net debt will rise 38% year-on-year (yoy) to a peak of RM9.6 bil by end-FY2021F or a net gearing of 0.75 times.
“We gather that there are no restrictive covenants on Genting Malaysia’s existing borrowings and believe lenders will likely be willing to extend more debt amid optimism of a business recovery in 2022-23F as the COVID-19 vaccination programme should have reached an advanced stage by end-2021F,” suggested CGS-CIMB Research.
“In the event Genting Malaysia is not able/chooses not to raise new debt, it has the option of skipping 1H 2021F DPS to buffer its cash requirements. In our base case, we currently project 1H 2021F DPS of 6 sen (1H 2020: 6 sen).”
If RWG’s re-opening is delayed till Jan 1 next year, the research house expects Genting Malaysia’s FY2021F core loss per share (LPS) to be 17% wider while if this stretches to April 1, the company’s FY2022F core EPS would be cut by 58%.
“For the latter scenario, the hit to our target price is -16 sen. A bigger concern is the emergence of more infectious/deadly COVID-19 variants that lead to further lockdowns for RWG, the US and UK operations in 2022-2023F,” assumed the research house.
“For now, we think this risk is manageable as existing vaccines continue to prove largely effective in preventing infection from new variants and reducing the risk of severe illness.”
All-in-all, CGS-CIMB Research reiterated its “add” call on Genting Malaysia with a 3% higher sum-of-parts (SOP)-based target price of RM3.20.
“We raise our target price, post-earnings cut (-10 sen) and rolling forward the discounted cash flow (DCF) base year to FY2022F (+20 sen),” noted the research house. “Key re-rating catalyst: RWG re-opening (possibly by mid-November) and earnings recovery in FY2022F.”
At 12.10pm, Genting Malaysia was up 2 sen or 0.71% to RM2.82 with 931,500 shares traded, this valuing the company at RM16.74 bil. – July 5, 2021
