KUALA LUMPUR: Genting Malaysia Bhd's key Malaysian operations are seeing the return of tourist arrivals, with operating capacity largely returning to pre-pandemic levels, says CGS-CIMB Research.
Following a weekend visit to Genting Malaysia's Resorts World Genting, the research firm said it reaffirmed its thesis that the continued recovery of the key Malaysian operations will drive a robust three-year earnings per share cumulative aggregate growth rate (CAGR) of 42% in FY22-25.
The Malaysian operations are key contributors to the group's revenue, accounting for 62% of total revenue in 1H23, said CGS-CIMB.
"We observed non-gaming activities, such as restaurant dining and indoor theme park (i.e. Skytropolis), were largely packed and the outdoor (SkyWorlds) theme park was busy with ongoing promotional campaigns.
"Based on our observation, Resorts World Genting’s casino capacity seems to be fully restored to pre-pandemic levels, with more slot machines and gaming tables that are well-manned across both gaming floors (evidence of easing of croupier shortage)," it said in a company note.
It added that Resorts World Genting is in good stead to benefit from the seasonally higher 4Q23 and 1Q24 forecast traffic as tourist arrivals continue to pick up.
CGS-CIMB estimates that the improved revenue generation on higher visitations should allow Resorts World Genting's earnings before interest, depreciation and amortisation (Ebitda) margin to come in at 2Q23/1H23 Ebitda margins of 34.7/33%, above management's guidance of 30-33% in FY23.
"We retain our 'add' call on Genting Malaysia, our preferred pick for the revival of Malaysia’s tourism sector, with an unchanged sum-of-parts-based target price of RM4.
"At our target price, Genting Malaysia would be trading on 21x CY24F P/E and offers a 4% dividend yield," it said.
On Genting Malaysia's bid for a commercial casino licence in New York, CGS-CIMB said it views the revival of the city's gaming commission's request for application process on Aug 30, 2023, for three licences as a major re-rating catalyst for the group.
The research firm said Genting Malaysia's Resorts World New York City (RWNYC) is a frontrunner in the application given its ability to generate extra gaming taxes for the state almost immediately.
RWNYC has an existing floor space to deploy 200 to 250 live table games as opposed to a new casino, and a long-term operational track record in the area.
The research firm believes that should RWNYC secure a licence, it could meet the minimum required capital of US$1bil from the proceeds of its Miami land, for which it has reportedly received an offer in excess of US$1.23bil.
CSG-CIMB said a successful application could lift its fair value by 8% to 14% to RM4.32 to RM4.55.