Genting Bhd offers deep value despite closure of casinos and hotels

Dividend play: A fund manager says Genting Bhd is a good dividend play, with a diversified business portfolio and proven revenue stream.

THE Covid-19 pandemic has been extremely brutal on businesses that even Malaysia’s well-known and diversified conglomerate, Genting Bhd, could not escape the brunt of the deadly virus outbreak.

For the first time ever, all of its casinos globally that delivered close to 60% of its revenue in the financial year of 2019 (FY19), have been shut down simultaneously.

The operations of its non-gaming leisure and hospitality businesses such as hotels and theme parks - which contributed 24% of total revenue – also took a major hit as a result of the movement restrictions in the markets Genting group operates in.

Not only that, the impact of the virus outbreak, coupled by slowing market demand, was also seen in Genting Bhd’s other businesses such as plantations, property and oil and gas.

The group has stated in its latest annual report that most of its worldwide operations are temporarily closed to curb the spread of Covid-19.

“The situation globally will remain fluid as world-wide governments’ responses to the Covid-19 pandemic continue to evolve rapidly to contain the outbreak.

“Given these unprecedented times of uncertainty, it is not prudent at this time to issue any statement on the group’s prospects, ” says Genting Bhd.

The year 2020 was supposed to be a key business year for Genting Bhd’s Malaysian operations, particularly in anticipation of higher tourist traffic spurred by the government’s Visit Malaysia Year (VMY) 2020 campaign.

However, VMY 2020 has since been cancelled in response to the Covid-19 outbreak and this has disrupted the potential earnings for the group this year.

After all, the Malaysian operations are the single largest top line contributor for the group.

For context, the Genting group comprises four public companies listed on the stock exchanges of Malaysia and Singapore – namely Genting Bhd, Genting Malaysia, Genting Plantations and Genting Singapore.

Meanwhile, its wholly-owned unlisted subsidiaries are Genting Energy Ltd and Resorts World Las Vegas LLC.

in view of the mounting challenges, equity analysts have slashed their earnings forecasts for the group.

CGS-CIMB Research has cut its core earnings per share estimate for FY20 by a whopping 51.5% and expects Genting Bhd to skip dividend payments in the first half of FY20 (2H20).

Meanwhile, AllianceDBS Research analyst Cheah King Yoong reduced his earnings estimates by 39% for FY20, mainly to reflect the reduction in earnings estimates of Genting Singapore and Genting Malaysia.

Commenting on Genting Malaysia’s outlook, Maybank IB Research analyst Samuel Yin Shao Yang expects the company to fall into the red in FY20.

He has cut Genting Malaysia’s earnings estimate for FY20 by nearly a billion ringgit to a net loss of RM290mil.

He also expects that all Genting Malaysia’s all casinos will take about six months to return to normalcy after reopening.

“If competing casinos in Asia are shut for longer, we do not discount the possibility that Resorts World Genting may require less than six months to return to operational normalcy.

“That may compel us to upgrade our FY20 earnings estimate, ” he says.

With regard to the group’s plantation and property businesses held through Genting Plantations Bhd, Affin Hwang Capital Research analyst Nadia Aquidah says that the company is affected by the weak market demand and crude oil price environment.

“We expect Genting Plantations’ FY20 earnings to decline year-on-year due to lower consumption of palm-oil products and a slowdown in property sales, ” she says.

Despite the depressed earnings outlook for the Genting group this year, experts remain bullish on the parent company.

Based on Bloomberg data, a total of 14 analysts have a “buy” call on Genting Bhd, while three analysts recommend a “hold”. There is no “sell” call on Genting Bhd.

AllianceDBS Research’s Cheah, who also has a “buy” view on Genting, says the counter offers cheaper exposure to subsidiaries.

“We believe that Genting Bhd continues to offer deep value. Furthermore, the stock has dropped by over 30% on a year-to-date basis, which we believe has priced in the negatives.

“Although we believe that FY20 is undoubtedly a challenging year for the group given the Covid-19 pandemic concerns, we expect operations to pick up from 2H20, ” says Cheah.

Speaking with StarBizWeek, Fortress Capital Asset Management chief executive officer Thomas Yong believes that Genting’s casino and hospitality businesses are unlikely to return to normal operating levels anytime soon.

“However, investors in Genting at this point should take a longer term perspective and regard it as a deep value stock that will eventually be valued based on its annual recurring income, ” he says.

Meanwhile, another fund manager points out that Genting’s financial performance is only temporarily affected.

“Frankly, it is not the end of the world.

“Genting Bhd is a good dividend play, with a diversified business portfolio and proven revenue stream.

As the Covid-19 situation is brought under control globally, confidence should return and Genting would be back in business as before.

“Moving forward, a key upside for the Group is the opening of Resorts World Genting’s outdoor theme park, which could happen in the third or fourth quarter. That should provide good support to the group’s earnings, ” he says.

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