Genting Bhd's (GENT) 3QFY24 net profit fell by 57% YoY due to lower earnings contribution from all major segments. Stripping out forex gains and other non-operating items, 9MFY24 core net profit of RM1,347.3m was within expectations at 71% and 78% of our and consensus full-year estimates, respectively. However, as we reduce our earnings forecasts for Genting Malaysia, we trim our FY24-26F projection for GENT by an average of 5%. Trading at an undemanding valuation of only 9x forward PER, we continue to like GENT and maintain our Outperform call. However, we note inherent operating/investment risks having recently surfaced which have affected sentiment on the stock. As a result, we lower our SOTP-based valuation to RM5.15 from RM6.00.

• 3QFY24 revenue fell by 11.2% YoY, as contribution from all major segments was lower, particularly Singapore, which was affected by weaker VIP rolling volume and win rate. Singapore, which accounted for 35% of total leisure & hospitality revenue posted a 19.9% drop.
• 3QFY24 core net profit was down 75.7% YoY, largely due to a 52.9% decline in Singapore's profit. Profit from Resorts World Genting fell by 11.6% as a result of higher operating expenses. Both Singapore and Malaysia made up of 51% of group's adjusted EBITDA.
• Outlook. The Genting Group of companies appear to have captured negative publicity recently, which we believe has affected the overall sentiment on the stock. In the US, the Nevada Gaming Control Board has accused RWLV of welcoming individuals with suspected ties to illegal bookmaking while GENM's partner in the Bahamas was suing its subsidiary for alleged fraud, seeking damages of over USD600m. Early this month, the Gambling Regulatory Authority of Singapore (GRA) announced renewal of RWS' casino license by only 2 years, one year less than the usual 3-year extension. Despite committing billions of investment into the Singapore integrated resort, GRA said this was due to its "unsatisfactory performance" in promoting tourism between Jan 2021 and Dec 2023, which coincides with Covid-19 pandemic. As the group's hospitality businesses are generally dependent on Chinese tourist arrivals, the economic slowdown in China is expected to impact its operations. While visitation should improve over time, the quality of spending has not reverted back to pre-pandemic levels, in our opinion. Coupled with the outstanding legal cases against the group, we now ascribe a 10% discount to our SOTP valuation, cutting our TP to RM5.15.

Source: PublicInvest Research - 29 Nov 2024