(This story had earlier referred to the share price of Genting Bhd and not Genting Malaysia Bhd. The mistake has since been rectified. We regret the error.)
KUALA LUMPUR (May 13): RHB Research has maintained “buy” on Genting Malaysia Bhd (GenM) at RM2.32 with a higher target price (TP) of RM2.97, from RM2.84 previously, for a 28% upside and circa 5% yield.
In a note today, the research house said with all of GenM's facilities still closed due to the Conditional Movement Control Order (CMCO), it is inevitable 2Q20 will see the group register unprecedented losses.
Nonetheless, RHB Research is of the opinion GenM should be able to withstand this challenging period given its robust balance sheet.
“We continue to like the stock as earnings ought to eventually recover and its long-term prospects remain intact. Valuation is still attractive at only 5.8x FY21F EV/EBITDA (-2SD) versus regional peer average of 9x,” it said.
Resorts World Genting remains closed with the CMCO now extended to June 9. Similarly, all of its overseas operations have closed since mid-March until further notice. RHB Research projects that the 12-week closure should lead to an estimated loss of 6-7 million in visitor arrivals. Every one week closure of its overseas operations should see revenue loss of circa RM60 million.
The research house said the upcoming 1Q20 results should still register positive EBITDA as visitor arrivals only declined slightly (circa 10-20%) prior to the MCO in mid-March. However, it said 2Q20 will likely see a net loss due to the closure of at least two months. Assuming a monthly fixed operating cost of about RM100 million, 2Q20 could register negative EBITDA of circa RM300 million. However, the amount could be lower once cost-cutting measures (ie salary cut) start to take effect.
“We now estimate FY20F to register RM141 million losses (from RM885 million profit) after factoring in the extended closure and slower 2H20F recovery. FY20F visitor arrivals are expected to decline 40% year-on-year. Our FY21F earnings are also cut by 9% after assuming a slower recovery as visitors may take time to regain confidence to participate in social activities,” it said.
RHB Research said Genting’s strong balance sheet will steer the company through this challenging time.
“Our FY20F net gearing of 0.26x (FY19: 0.19x) is still not alarming. Historically, operating cash flow has been strong at circa RM2.5 billion per annum. Once business normalises, net gearing should improve, especially as GenM is at the end of its capex spending.”
RHB Research’s RM2.97 TP for GenM is derived after rolling forward its base year while lowering its valuation multiple in view of the further risk of a prolonged Covid-19. The target FY21F EV/EBITDA of 7.1x is conservative at -1SD.
The research house’s recommendation is to maintain “buy” as it believes earnings will eventually recover. GenM’s longer-term prospects remain intact with the expected opening of its outdoor theme park by 3Q20 and continuous turnaround of Empire Resorts.
Despite the recent share price recovery, current trading valuation of 0.8x P/BV and 5.8x FY21F EV/EBITDA (-2SD) remains attractive compared to its regional peer average of 9x. However, there are key downside risks: a prolonged Covid-19 pandemic, luck factor and regulatory risk.
At 4pm, GenM shares traded down 2 sen or 0.86% at RM2.30 apiece, with 9.15 million shares traded. Its market cap stood at RM13.17 billion.