Genting Malaysia (GENM) reported a net loss of RM348.1m in 2QFY21, a significant improvement from 2QFY20 net loss of RM900.4m as most operations were shut last year during the initial wave of the Covid-19 pandemic. Nevertheless, 1HFY21 results came in below our and market expectations due to the impact of prolonged lockdown in Malaysia. Although the government has ramped up the National Covid-19 Immunisation Programme in recent months, it remains uncertain when the tourism sector will be allowed to resume operations given the challenges surrounding the evolving Covid-19 situation. As a result, we slash our FY21F forecast to a net loss of RM1.2bn and lower our FY22F profit forecast by 30% to RM646m. However, as we reckon investors should not be focusing on near-term earnings setback but towards a gradual improvement for the group in FY22-23F, we now value GENM based on 2-year average forward earnings. Consequently, our SOTP-based valuation is revised from RM3.00 to RM3.25. Maintain Neutral on GENM. No dividend was declared for the current quarter.

• 2QFY21 revenue jumped 7-fold to RM817.9m as the previous year’s corresponding quarter was severely affected by a global lockdown that resulted in closure of operations in the UK, US and Malaysia. Revenue from Malaysia increased from RM82.2m in 2QFY20 to RM237.9m in the current quarter. Meanwhile, contribution from the US has surpassed Malaysia as Resorts World New York City achieved almost similar levels of business as pre-Covid levels. Meanwhile, the group’s land-based casinos in the UK have re-opened since May 2021 compared to a closure of operations throughout 2QFY20.
• Remains loss-making, dragged by Malaysian operations. Malaysia posted a LBITDA of RM94.2m while operations in the UK and US were profitable during the quarter. The group posted an EBITDA of only RM44.8m in 2QFY21, insufficient to cover its sizeable depreciation and finance costs of almost RM400m. Its associate, Genting Empire Resorts, remained a loss-making unit. It, however, registered lower losses of RM50.6m versus RM78.6m in 2QFY20.
• Outlook. While Malaysia has achieved a relatively high vaccination rate, enabling more sectors of the economy to be opened up to fully vaccinated individuals, we generally believe the pace of recovery would remain slow. We reckon the prolonged lockdown would affect consumer spending on non-essential and discretionary activities. Moreover, as the number of Covid-19 cases remains elevated, people may be reluctant to visit places with larger crowds such as theme park and casino, at least in the immediate term.

Source: PublicInvest Research - 27 Aug 2021