Review

• Genting Malaysia’s (GENM) FY23 core earnings of RM587.7mn came in within our expectation but above consensus forecast. For this quarter, the company declared a final dividend of 9sen/share, bringing the YTD total dividend to 15sen/share. This is equivalent to a dividend yield of 5.2%.

• GENM’s FY23 adjusted EBITDA increased 24.4% to RM2.6mn on the back of 18.4% rise in revenue to RM10.2bn. The decent earnings growth was due to low base effect as Malaysia operations remained sluggish last year especially during 1Q22 as not all key markets have opened their borders. In addition, the weak ringgit performance also helped to drive the gaming volume in Malaysia and boosted translation gains on US and UK’s contributions.

• In terms of breakdown, Malaysia operations registered a revenue growth of 23.1% and EBITDA growth of 26.2% YoY for FY23. This was driven by higher visitations post economic reopening. Meanwhile, US operations recorded 13.0% increase in revenue and 15.2% increase in adj. EBITDA, offsetting weaker performance from UK operations with adj. EBITDA contracted by 3%.

Impact

• No change to our FY24-25 earnings projections. Conference call highlights

• Malaysia 4Q23 gaming revenue surged 19% YoY, driven mainly by the non-VIP segment which rose to 46% mix vs 42% in the preceding year. For FY23, the gaming revenue improved 25% with higher contribution from both VIP (+15%) and non-VIP (+33%) segments.

• 4Q23 EBITDA margin for Malaysia operations slid below the norm to 29.4% and management attributed this to rise in marketing costs. Management envisages the margin would return to the norm of 31% this year even with the hike of 2% service tax effective Mar-24.

• The closure of Circus Palace and Hollywood casinos for renovation would not result in significant drop in revenue as the existing SkyCasino has sufficient capacity to cope for the rise in gaming volume. We believe the closure is also a part of the cost optimisation effort to provide some buffer against the rise in service tax and utility charges.

• In US, there are potential buyers for Miami land, which was terminated last year. As far as new full-scale casino licences in New York are concerned, the progress is at a snail pace but we remain bullish on GENM’s chance in securing one of the 3 licences given its existing gaming operations in Resorts World New York City.

Valuation

• Rolling our valuation base year to FY24, we raise GENM’s DCF valuation to RM3.17/share (from RM2.71 previously) with unchanged CAPM of 19.3%. Given the total return of 15.9%, we upgrade GENM to Buy (from hold previously).

Source: TA Research - 1 Mar 2024