KUALA LUMPUR (Nov 27): Genting Malaysia Bhd's (GENM) share price fell more than 2% in Bursa Malaysia morning trades today after the hotel and casino operator reported yesterday a third quarter net loss of RM704.64 million versus a net profit of RM410.84 million a year earlier and as the broader market dropped today.

At 11:04am, GENM’s share price was down seven sen or 2.69% at RM2.53 for a market value of about RM14.7 billion. The stock saw some 13 million shares traded.

Meanwhile, Genting Bhd, which owns 49.5% of GENM, was down seven sen or 1.65% at RM4.18. The stock saw some seven million shares changed hands.

At RM4.18, Genting has a market capitalisation of about RM16.09 billion.

Across the broader market at 11:27am, the 30-stock FBM KLCI dropped 4.08 points or 0.25% to 1,608.03.

Yesterday, GENM said its net loss in the third quarter ended Sept 30, 2020 (3QFY20) brought cumulative 9MFY20 net loss to RM2.02 billion versus a net profit of RM1.1 billion a year earlier.

In quarterly terms, GENM said 3QFY20 loss before taxation narrowed to RM361.3 million from a loss before taxation of RM1.04 billion in 2QFY20.

Today, TA Securities Holdings Bhd analyst Tan Kam Meng wrote in a note that GENM’s 9MFY20 cumulative core loss, which excludes exceptional items, stood at RM1.2 billion, which exceeded both TA Securities' and consensus full-year loss projections of RM812.5 million and RM824 million respectively.

"We raise GENM’s FY20 loss to RM1.6 billion (RM812.5 million previously) after incorporating the weaker-than-expected results as well as the impact of CMCO (Malaysia’s conditional movement control order). We also cut FY21-22 earnings projections by 30.4% and 1.8% to RM499 million and RM1.4 billion, assuming the return of foreign players from 2H21 onwards.

"Despite earnings downgrade, we raise GENM’s DCF (discounted cash flow) valuation to RM3.20 (from RM2.93 previously) after rolling forward our base year to FY21. We reiterate 'buy' on GENM, which is one of our favourite 'vaccine' trades,” Tan said.

Malaysia has implemented the CMCO to curb the spread of the Covid-19 pandemic, which has hurt industries including the tourism, aviation and hotel sectors.

Meanwhile, CGS-CIMB Securities Sdn Bhd analysts Foong Choong Chen and Sherman Lam Hsien Jin wrote in a note today that headwinds abound for GENM but recovery is imminent for the company as the research firm sees GENM’s net profit recovering in FY21 and FY22.

"We raise GENM’s FY20F core net loss to RM1.3 billion to reflect a weaker 4Q20F but raise FY21/22F core EPS by 3%/6% as we factor in lower opex (operational expenditure). 

"We see FY21F net profit recovering to RM563 million, then doubling in FY22F, as visitors fully return (partly bolstered by Genting SkyWorlds’s mid-2021 opening). We still project 11 sen DPS (dividend per share) p.a. in FY20/21F (with 5 sen final DPS in 4Q20F) before reverting to 20 sen in FY22F (pre-Covid-19 level).

"We raise GENM’s target price (to RM2.95 from RM2.70) post the earnings upgrade (still based on a 15% discount to RNAV (revalued net asset value)),” they said.

The analysts said the full recovery of casino volumes when Covid-19 is finally contained is a potential re-rating catalyst for GENM. 

The downside risk to GENM is worse-than-expected Covid-19 impact, they said.