PETALING JAYA: Genting Malaysia Bhd’s (GenM) operating capacity has largely returned to pre-pandemic levels as domestic and foreign tourist arrivals are on the path to full recovery, says CGS-CIMB Research.
The research house said GenM’s non-gaming activities like restaurant dining and indoor Skytropolis theme park, were largely packed and the outdoor SkyWorlds theme park was busy with ongoing promotional campaigns.
“Our recent weekend trip to GenM’s Resorts World Genting (RWG) property reaffirmed our thesis that the continued recovery of its key Malaysian operations (62% of first half of 2023 (1H23) total revenue) will drive a robust three-year earnings per share compound annual growth rate of 42% in the financial year 2022 (FY22) to FY25 based on our estimates,” CGS-CIMB Research said in a report yesterday.
The research house noted there were more slot machines and gaming tables that are well-manned across both gaming floors (reflecting the easing of a croupier shortage), all of which were indicating RWG’s casino capacity seems to be fully restored to pre-pandemic levels.
“This puts RWG in good stead to benefit from the seasonally higher fourth quarter of 2023 (4Q23) and 1Q24 traffic as tourist arrivals continue to pick up, in our view.
“Improving revenue generation on higher visitations should allow RWG’s earnings before interest, taxes, depreciation, and amortisation (Ebitda) margin to come in above management’s guidance of 30% to 33% for FY23, with 2Q23 and 1H23 Ebitda margins at 34.7% and 33.0%, respectively, in our estimate,” CGS-CIMB Research wrote.
Moreover, the research house said another major re-rating catalyst for GenM is the revival of the New York State Gaming Commission’s Request for Application process on Aug 30, 2023, (after a six-month halt) for three New York commercial casino licences.
“We believe Resorts World New York City (RWNYC) is a frontrunner. This is given RWNYC’s ability to generate extra gaming taxes for the state almost immediately (existing floor space ready to deploy 200 to 250 live table games) versus a new casino, and its long-term operational track record in the area.
“We believe that should RWNYC win a licence in 2024, the minimum required capital of US$1bil could be funded by the potential sales proceeds of its Miami land, for which it has received an offer in excess of US$1.23bil.
“As such, we estimate this could lift our fair value by 8% to 14% to between RM4.32 and RM4.55,” CGS-CIMB Research said.
CGS-CIMB Research maintained an “add” call for GenM with a target price of RM4 a share. Higher-than-expected operating costs and slower Malaysia gaming revenue recovery are the downside risks to its call.
“GenM is our top pick for exposure to a rebound in tourism. We believe valuation is undemanding at 13 times 2024 price to earnings ratios with 6% to 7% dividend yield,” the research house said.