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PublicInvest Research

Author: PublicInvest   |   Latest post: Fri, 15 Jan 2021, 10:38 AM

 

Genting Malaysia Berhad - Expecting A Gradual But Slow Recovery

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Genting Malaysia (GENM) reported an RM704.6m net loss for 3QFY20, compared to a profit of RM410.8m in 3QFY19. This was largely due to the impact of Covid-19 which resulted in its resumed operations running at reduced capacity. Meanwhile, Empire Resorts remained a loss-making associate, posting a loss of RM62m. Also, GENM incurred redundancy cost amounting to RM59.3m as well as an impairment of assets of RM180m in the current quarter. Stripping out non-operating items, core net loss stood at RM485.1m compared to core net profit of RM337.5m in 3QFY19. For 9MFY20, results were worse-than-expected as its core net loss accounted for 120% and 165% of our and consensus full-year estimates respectively. We raise our FY20F net loss forecast by 18% but FY21-22F remains unchanged. Generally, we believe the worst is over and with the anticipation of a gradual recovery of the tourism industry following news on vaccine breakthrough, we raise our multiple for its leisure & hospitality segment to 12x FY21F earnings (previously 10x). Our SOTP-based TP is revised from RM2.00 to RM2.40. We upgrade GENM to Neutral.

  • 3QFY20 revenue dropped 46% YoY due to a decline in business volume for all its leisure & hospitality operations in the UK, US and Malaysia following the coronavirus pandemic which resulted in businesses operating at reduced capacity. Malaysia, UK & Egypt and US & Bahamas operations suffered 34%, 68% and 80% drop in revenue. For Malaysia, the volume from the mid to premium players segment was relatively stable compared to 3QFY19 despite the lower capacity. On a QoQ basis, revenue saw a sharp recovery from RM115m in 2QFY20 to RM1,417m largely due to resumption of operations following a period lockdown.
  • 3QFY20 adjusted EBITDA was down 55% YoY due to lower revenue recorded by all major segments, though partly mitigated by lower payroll costs as a result of lower headcount. Meanwhile, headline net loss was narrower compared to 2QFY20 due to the recalibration of operating structure and the reopening of the economy
  • Takes time for earnings to revert to pre-pandemic levels. Under the expectation that the badly-hit travel and tourism industry is on the road to recovery following news of vaccine breakthrough, interest in GENM’s stock has since improved. Although we believe the worst is over with full lockdown on economies not likely to recur, earnings are only expected to recover slowly. We reckon the impact of economic fallout on consumer sentiment should continue to affect spending on non-essential and discretionary activities. As such, we think full recovery is more plausible in FY2022F.

Source: PublicInvest Research - 27 Nov 2020

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