KUALA LUMPUR (May 27): Analysts have lowered the earnings forecasts of Genting Bhd and Genting Malaysia Bhd (GENM) after their results came in below expectations.

Hong Leong Investment Bank Research’s analyst Low Jin Wu said in a note today Genting recorded a first quarter 2021 (1Q21) core loss after tax and minority interest (LATMI) of RM318 million, which was below his expectation largely due to weaker-than-expected results from GENM and Genting Singapore Ltd (GENS).

He said the group’s Malaysian and Singaporean operations will remain challenging in the near term as Covid-19 cases have been escalating at an alarming pace in Southeast Asia of late.

“We cut our earnings [for Genting] by -96.1%/-25.9% for FY21/FY22 to factor in our adjustments of profit from its subsidiaries. The bulk of our earnings cut stems from our revision of GENM’s core loss,” he said.

He also lowered Genting's target price (TP) to RM5.75 (from RM6) as he imputed earnings and TP adjustments from GENM, Genting Plantations Bhd (GENP) and GENS.

However, he maintained a "buy" call on Genting as he believed that investors will eventually start to look ahead of its poor results as its UK and US operations are expected to record healthy sequential recoveries going forward.

In a separate note, Low said GENM's 1Q21 core LATMI of RM464 million was below his full-year forecast largely due to movement control order 2.0 (MCO 2.0) as Resorts World Genting (RWG) was shut for 25 days in 1Q21.

“We expect FY21 to be very challenging for GENM due to MCO 3.0 and the escalating Covid-19 cases recently,” he said.

Hence, he revised GENM core net loss forecast to RM959 million from RM74.2 million to factor in the possibility of an MCO 3.0 extension and also cut its FY22 earnings by 22% to factor in a slower recovery from Covid-19 in FY22.

Nevertheless, he still expects GENM to record an exponential recovery in FY22, and believes that investors will look beyond FY21.

Thus, he maintained a "buy" call on GENM with a lower sum of parts (SOP) based TP of RM3.05 (from RM3.55).

Meanwhile, Kenanga Research’s analyst Teh Kian Yeong said in a note today that Genting turned to the red again in 1QFY21 with core loss of RM109.2 million as opposed to his FY21 net profit forecast of RM1.16 billion due to GENM’s widened losses as it was badly hit by MCO 2.0.

Besides, GENS saw weaker earnings in the absence of one-off items while GENP also reported lower earnings as its downstream turned to losses.

“Post 1QFY21 results, we cut [Genting] FY21/FY22 estimates by 40%/7% as the resurgence of Covid-19 cases is expected to delay recovery,” he said, adding that Genting's upcoming 2QFY21 will likely remain weak.

Post earnings revision, his new TP for Genting is reduced to RM5.58 from RM5.93 based on five-year mean discount of 43% from 42.7% previously to its SOP valuation.

However, he maintained an "outperform" call on Genting as he sees Genting as a good pick for recovery play as he believes its business should recover quickly once travelling restrictions are lifted, as was witnessed earlier in GENS and GENM enjoying pent-up business volume post business resumption last year.

In a separate note, Teh said GENM's 1QFY21 results missed forecasts as losses widened due to MCO 2.0.

Post 1QFY21 results, he expects GENM to post a net loss of RM175.9 million from net profit of RM390.9 million previously as MCO 3.0 has delayed an expected earnings recovery.

“We also cut FY22 earnings estimate by 15% but net dividend per share for both years remained unchanged at 12 sen each,” he said.

While GENM's upcoming 2QFY21 should remain weak given the ongoing MCO 3.0, he opined that its UK and US operations should have bottomed, being allowed to resume following high vaccination rates which have helped to reduce infections and fatality rates.

As such, he believed GENM also should benefit once Malaysia progresses to higher vaccination rates by 2HFY21.

Thus, he kept his "outperform" rating on the stock but with a lower SOP-driven TP of RM3 from RM3.35 previously.

Genting and GENM were among the 30 top losers this morning. Genting fell five sen or 1.02% to RM4.86. At RM4.86, the group was valued at RM19.04 billion.  

Meanwhile, GENM slipped five sen or 1.82% to RM2.70, valuing the group at RM16.33 billion.