KUALA LUMPUR (Feb 14): Genting Malaysia Bhd's (GenM) core net profit for the fourth quarter ended Dec 31, 2022 (4QFY2022) is expected to ease quarter-on-quarter (q-o-q), on the back of slightly softer revenue at Resorts World New York City (RWNYC) and a lower margin at Resort World Genting (RWG), according to CGS-CIMB.

In a note on Tuesday (Feb 14), CGS-CIMB analysts Foong Choong Chen and Sherman Lam Hsien Jin said the research house expects GenM’s core net profit to ease between 10% and 20% q-o-q to RM150 million-RM170 million, from RM189 million posted for 3QFY2022.

Nonetheless, the duo noted that this would translate into FY2022 core net profit of RM450 million to RM470 million, largely in line with its forecast of RM434 million, compared to the consensus of RM404 million, given the relatively low earnings base.

“We see 2HFY2022's dividend per share at 8.5 sen (for the second half ended Dec 31, 2022), bringing FY2022's to 14.5 sen (FY2021: nine sen),” they added.

The CGS-CIMB pair reasoned that the casino and resort operator is expected to bear a higher share of losses from Empire Resorts ⁠— after it raised its effective stake in the gaming company from 66.6% to 76.3% ⁠— coupled with softer revenue at RWNYC and a lower earnings before interest, tax, depreciation and amortisation (Ebitda) margin at RWG.

The CGS-CIMB analysts noted that based on statistics from the New York State Gaming Commission, RWNYC’s 4QFY2022 gross gaming revenue fell 2% q-o-q, adding that: “Ebitda should trend the same, as we believe margins held q-o-q (3QFY2022: 40%) despite higher payroll cost."

Meanwhile, CGS-CIMB said RWG's revenue is expected to rise between 5% and 10% q-o-q for 4QFY2022, led by seasonally stronger visitor arrivals and the return of foreign tourists.

“However, we estimate that the Ebitda margin was a bit lower q-o-q at 30% to 31% (3QFY2022: 31.9%), due to salary adjustments in September 2022 after RWG signed a collective agreement with its workers' union, as well as an increased headcount,” the pair continued.

Touching on the counter’s key potential rerating catalyst, the CGS-CIMB analysts noted that RWNYC is in a good position to win a full casino licence from the New York Gaming Facility Board, as it will be able to quickly kick-start live table games, and generate tax income and jobs for the state. 

“Winning a licence, possibly awarded in 2H2023 [at the earliest], could enhance GenM’s fair value by 44 sen to 51 sen per share,” they added.

Foong and Lam made no change to their “add” call on GenM, with an unchanged target price of RM3.25.

As at 3.45pm on Tuesday, GenM had gained three sen or 1.05% to RM2.88 a share, giving the company a market capitalisation of RM17.1 billion.