3QFY20 result was a surprise with core profit of RM219.1m, where all its casinos experienced pent-up volume as business operations resumed. Both key casino RWG and RWS registered impressive profitable earnings despite operating at lower capacity. GENS is now expected to lead the earnings

recovery; thus, we prefer GENTING over GENM. We reiterate our OP call on the stock with a higher TP of RM5.70.

3QFY20 beat expectations. A surprisingly strong rebound in GENM’s RWG and GENS’ RWS pushed GENTING back to profitability in 3QFY20 with core profit of RM219.1m, bringing 9MFY20 to core profit of RM98.2m against house’s/street’s FY20 net loss forecast of RM314.6m/RM552.1m. No dividend was declared in 3QFY20 as expected as it usually pays half-yearly dividend as in the past.

Strong rebound in casino earnings… 3QFY20 turned profitable with core profit of RM2191m from core loss of RM516.6m in 2QFY20 as revenue tripled to RM3.30b. This is largely thanks to the sharp turnaround in casino operations in Malaysia and Singapore with Leisure & Hospitality segment’s adjusted EBITDA of RM801.1m from loss of RM841.4m previously. This was further boosted by GENP reporting higher earnings as plantation adjusted EBITDA leapt 31% on nhigher CPO and PK prices by 8% and 10%, respectively.

…with solid CPO prices too. While YoY earnings plummeted 64% from RM609.9m in 3QFY19 and 95% from RM1.89b in 9MFY20 principally due to the pandemic-hit casino earnings, it was partially nmitigated by the strong CPO price-led earnings recovery of GENP as the plantation’s adjusted EBITDA doubled in 3QFY20 and jumped 37% in 9MFY20 as CPO and PK prices soared 27%/26% and 30%/23%, respectively.

GENS to lead earnings recovery in 4QFY20. With more stable COVID-19 situation in Singapore while the resurgence of new cases affecting Malaysia, the UK and North America operations, GENS is nexpected to lead earnings recovery in this coming year-end holiday season. As previously experienced in all its casinos geographically, pandemic cases subsiding with easing lock downs will boost earnings strongly. Post-3QFY20 results, we now expect GENTING to post net profit of RM360m in FY20 from net loss of RM552m previously. We also fine-tuned FY21 forecast upward marginally by 1%.

Maintain OUTPERFORM for its value. We turn cautiously optimistic non GENTING following the strong set of results from GENS and GENM which enjoyed pent-up business volume post business resumption. As such, we believe its businesses should recover quickly once travelling restrictions are lifted and GENTING should be thus viewed as a recovery play. With GENS taking the driver seat of earnings recovery, we prefer GENTING over GENM. We maintain our OUTPERFORM call on the stock with a higher target price of RM5.70 from RM5.10 based on unchanged 5-year mean discount of 42.7% to its SoP valuation.

Risk to our call is a prolonged COVID-19 pandemic continuing to restrict travelling and hence affecting its casino operations.

Source: Kenanga Research - 27 Nov 2020