Genting Malaysia prospects remain hazy as full brunt of Covid-19 yet to be seen

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KUALA LUMPUR (May 22): Genting Malaysia Bhd's (GenM) prospects going forward remain hazy at best, as the full extent of the closures due to the Covid-19 pandemic is yet to be seen, said analysts.

Affin Hwang Capital has maintained its "sell" rating on GenM at RM2.36 with a lower target price of RM1.60 (from RM1.66).

In a note today, the research house said GenM reported a weak set of numbers, as the first quarter of the year (1Q20) core-PATAMI of RM48 million was significantly below both house and consensus forecasts.

"The losses were due to lower revenue contribution from its casinos, as its casinos were required to stop operations to help stop the spread of Covid-19," it said.

It added that it is challenging to forecast the earnings of GenM, as there is no clear indication on when all its casinos can reopen.

"Malaysian operations, which are the main contributor, have a cash burn rate of around RM4 million/day including interest payments during the closure. Although management is focused on reducing overheads to help reduce the losses, we believe the impact is unlikely to be significant.

"Due to the prolonged closure, we have cut our earnings for 2020-22E by 23%-98%," it added.

Additionally, Affin Hwang said the key risks to the call include: i) intensifying competition from other regional casinos; ii) higher-than-expected cost structure; and iii) volatility in VIP segment.

Meanwhile, CGS-CIMB noted that GenM's 1Q20 adjusted fell 45.5% year-on-year (y-o-y) and 31.8% quarter-on-quarter (q-o-q) due to lower revenues across all of its operating markets due to Covid-19.

"Coupled with a share of Empire Resorts' losses, higher depreciation and interest cost, core net loss was RM30 million (1Q19: +RM377 million). As we see wider losses in 2Q20F, we think GenM is unlikely to meet our/Bloomberg consensus' previous FY20F core net profit of RM345 million/RM416 million," it said.

CGS-CIMB added GenM's Malaysia 1Q20 leisure and hospitality revenue declined 35.8% y-o-y (-23.7% q-o-q), as Resorts World Genting's (RWG) VIP gross gaming revenue (GGR) tumbled 30% y-o-y (as hold rates normalised) while mass GGR plunged 33% y-o-y. Hotel or F&B revenue also fell 25%/40% y-o-y.

It also said that the US and the Bahamas posted a 77% y-o-y drop in earnings before interest, taxes, depreciation and amortisation in 1Q20, owing to the temporary closure and higher opex at Resorts World New York City (RWNYC) and Resorts World Bimini.

CGS-CIMB added the extended closure of resorts led to FY20F net loss of RM125 million as GenM delayed the opening of RWG's outdoor theme park (OTP) to end-2021 (from 3Q20).

"Its FY20 capex guidance is also cut to RM300 million (previous: RM1.3 billion) for RWG as it defers OTP and non-essential capex and US$100 million (previous: US$250 million) for RWNYC.

"It may cut staff to match reduced operating capacity or visitor arrivals," it added.

At 12.06pm, GenM fell 2.12% or five sen to RM2.31, valuing it at RM13.72 billion.