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PublicInvest Research

Author: PublicInvest   |   Latest post: Thu, 2 Jul 2020, 10:24 AM

 

Genting Malaysia Berhad- First Core Net Loss

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Genting Malaysia (GENM) reported an RM418m headline net loss for 1QFY20, dragged by a sharp decline in business volume at its leisure & hospitality segment while also recognizing impairment losses. Due to the devastating impact of Covid-19 on the tourism and entertainment industry, revenue for its leisure & hospitality segment fell 29% while an impairment loss amounting to RM346.3m was recognized in relation to its assets in the UK and Bahamas. Stripping out non-operating items, GENM’s core net loss stood at RM50m compared to a profit of RM167m in 1QFY19. On 18 May 2020, we issued a note highlighting potential losses due to an extended period of lockdown and slashed our FY20F forecast on GENM to a core net loss of RM212m (consensus still projecting RM416m net profit for FY20F). Following this set of results, we further reduce our FY20F net loss forecast to RM393m. Our SOTP based TP is lowered to RM2.00 from RM2.45 previously. We downgrade GENM from Neutral to Trading Sell.

  • 1QFY20 revenue dropped 28.5% 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 poor visitor arrivals. Also, Malaysia implemented the Movement Control Order (MCO) on 18 March, causing a suspension of operations of Resorts World Genting. As a result, leisure & hospitality revenue from Malaysia fell 36%.
  • 1QFY20 adjusted EBITDA was down 48% YoY due to lower revenue recorded by all major segments as well as higher payroll cost and operating expenses in the US. GENM recognized impairment loss amounting to RM346.3m in relation to the assets of Resorts World Birmingham (RM223.3m), UK casino licenses (RM56.5m) and Resorts World Bimini (RM66.5m). Also note there was a share of associate loss of RM100m, which we attribute to Empire Resorts.
  • Earnings recovery will take time. Although we are seeing some easing of lockdowns in both domestic and regional markets, tourism and entertainment sector remains closed in the US, UK and Malaysia. Even if casinos and other tourist attractions are allowed to operate once the lockdowns are eventually lifted, we believe restrictions will be enforced with limitation to operating capacity in order to foster compliance with social distancing guidelines. We opine that these restrictions will continue beyond 2020. In addition to the impact of economic fallout on consumer sentiment, we are of the view that operations may not fully return to normalcy even in FY2021F. Full recovery is more plausible in FY2022F. Note that the scheduled opening of outdoor theme park has been delayed to end-2021 (previous target was 2H2020).

Source: PublicInvest Research - 22 May 2020

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GENM 2.60 +0.09 (3.59%) 5,627,400 

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