PETALING JAYA: Despite its ongoing losses due to shutdowns, Genting Malaysia Bhd (GenM) could remain a convincing recovery play, given the speed of vaccinations and further easing of movement restrictions in the country.
Additionally, the group is seeing a recovery in its overseas operations.
GenM recorded a net loss of RM348.11mil for the second quarter ended June 30, 2021 (Q2), boosting the cumulative net loss for the first half (H1) of financial year 2021 (FY21) to RM831.7mil.
While the Malaysian operations recorded a higher loss before interest, taxes, depreciation and amortisation (Lbitda) quarter-on-quarter (q-o-q) due to Resorts World Genting’s (RWG) closure since June 1, RHB Research noted that the group registered positive earnings before interest, taxes, depreciation and amortisation (Ebitda) from stronger overseas contribution.
The United States segment’s Ebitda rose 59% q-o-q, as Resorts World New York City’s gross gaming revenue neared pre-Covid-19 levels. Meanwhile, the United Kingdom segment recorded a RM14.3mil Ebitda versus Q1’s RM51.7mil Lbitda, on the reopening of land-based casinos since mid-May.
“Post-results, we widened our FY21 loss estimate to RM1.19bil from RM1.05bil, and lowered FY22 earnings by 7% as we now expect RWG to only reopen in Q4.
“Nevertheless, we maintain our ‘buy’ recommendation with a higher target price (RM3.40) after raising our valuations for the Malaysia, and US and UK operations to reflect the growing optimism on economic reopening plays and rebound in domestic tourism activities, given the speed of vaccinations and moderation in new severe cases,” the research house said.
It also noted further upside to its forecasts from the potential mobile sports betting licence in New York, for which its associate – Empire Resorts – has formed a consortium and submitted a bid. While details are scarce at the moment, the winner of this bid could be known by the end of 2021.
While there are no indications on when RWG can reopen, the group is prepared to reopen upon receiving the all-clear, with its Genting SkyWorlds outdoor theme park also set to be unveiled.
RHB believes RWG will remain closed in Q3 and only reopen some time in Q4. “Even though RWG’s ongoing closure will impact the group’s near-term earnings, its lower cash burn rate of around RM2.5mil a day (2020: RM4mil/day) – following cost-cutting measures and the strong recovery the UK and US operations – should continue to mitigate the adverse impact,” it added.
Meanwhile, TA Securities is less optimistic on the company, noting that it may now take longer for GenM’s earnings to return to the pre-pandemic levels in view of the low vaccination rates in neighbouring countries, except Singapore.
The brokerage has cut its FY21 earnings projection to a loss of RM1.09bil from a profit of RM17.4mil. It has also cut its FY22-FY24 earnings by 13.8% to 42.0%. It has downgraded its recommendation on the stock to a “hold” from a “buy” previously with a target price of RM3.19.