KUALA LUMPUR (Jan 18): Kenanga Research has slashed its earnings forecasts for Genting Malaysia Bhd (GenM) on expectations that fresh lockdowns in Malaysia and the UK will take a heavy toll on the company's near-term operations.

In a note, Kenanga Research forecast a wider net loss of RM1.8 billion for the financial year ended Dec 31, 2020 (FY20), from RM1.36 billion, as the research house increased its estimates of losses from Malaysia and UK casinos despite reduced losses for North America operations and Empire Resorts.

“We also further cut our FY21 earnings estimate by 22% on lower Malaysian earnings, [with] higher North America earnings but [we] keep the UK earnings (forecast) unchanged,” it added.

As such, the research house anticipates GenM to generate an annual profit of RM401 million for FY21, following a loss of RM1.8 billion projected for FY20. However, both figures are significantly lower compared with the RM1.4 billion profit booked during FY19.

While Kenanga Research maintained its “market perform” rating of GenM, it cut its target price (TP) to RM2.45, from RM2.60 previously, as it believes the stock now is fairly valued.

It also said GenM's parent company Genting Bhd is a better proxy for earnings recovery on the back of Genting Singapore.

Having said that, the research house expects a strong rebound for GenM once lockdowns are lifted with vaccine roll-outs envisaged to lead to eventual borders reopening.

It was reported last week that GenM’s UK unit had proposed to permanently close its Genting Casino in Southport due to Covid-19. To date, Genting UK has already closed casinos in Margate, Torquay and Bristol, and reduced its workforce in the rest of its UK casinos.

The UK started its second lockdown on Nov 5, 2020 to combat the pandemic, which did not abate but worsened recently with daily new cases above 40,000 since Dec 28, 2020.

Back in Malaysia, Kenanga Research said the reimposition of the movement control order (MCO) in six states will further impact its operations.

“As such, upcoming 4QFY20 (fourth quarter ended Dec 31, 2020) and 1QFY21 results are expected to see wider losses from a loss before interest, tax, depreciation and amortisation (LBITDA) of RM50.5 million in 3QFY20. During the peak of the pandemic, management guided that the cash burn rate of the UK operations, which had 43 casinos across the country, was £7 million (RM38.45 million) per month,” said Kenanga Research.

The local research house added that at home, the seasonally strong year-end and Chinese New Year bumps are not expected to be in 4QFY20 and 1QFY21, and GenM could return to the red again but the severity would be less than in 2QFY20 as the period had a full lockdown.

“While there are no updates on the outdoor theme park, known as Genting SkyWorlds, the targeted timeline to open it in mid-2021 could be delayed given the current situation,” it added.

On its North America operations, the research house said there are positive signs which could help to reduce losses for the group as Resorts World Casino New York City and Resorts World Catskills had reported encouraging data, while Resorts World Bimini also reopened on Dec 26, 2020.

At the time of writing today, GenM’s share price had fallen five sen or 2% to RM2.45. At the price, the group was valued at RM14.55 billion.