Genting Bhd (GENT) reported headline net loss of RM132.3m for 1QFY20 due to lower contribution from all business segments, particularly leisure & hospitality, and impairment loss amounting to RM482.5m. Having adjusted for non-operating items, GENT’s 1QFY20 core net profit worked out to be RM360m, down 51% YoY. Although this beats our full-year net profit forecast of RM285m (while consensus is at RM1.4bn), we further reduce our estimates by 21% to RM224m as we expect weaker set of results for the coming quarters following an extended period of lockdown due to the coronavirus pandemic. However, not all is gloom as we see some YoY earnings growth from the power and plantation divisions. As a result of the downward adjustment in our forecasts, our SOTP-based TP for GENT is revised to RM4.70 (RM5.40 previously). Given the weak earnings trajectory in the near term, we downgrade GENT from Outperform to Neutral.

• 1QFY20 revenue fell 26% YoY. Malaysia’s leisure & hospitality business delivered a 36% drop in revenue due to the impact of Covid-19 which resulted in lower visitor arrivals and a lockdown in March. Singapore was also affected with revenue falling by 37%. Both Singapore and Malaysia account for the bulk of the group’s leisure & hospitality revenue at 78%. Meanwhile, lower plantation revenue was mainly attributed to softer demand for downstream products. Power segment delivered stronger revenue on the back of higher generation from the Banten power plant.

• 1QFY20 adjusted EBITDA fell 41% YoY. The leisure & hospitality segment posted a 48% drop in earnings with Singapore and Malaysia registering 53% and 38% declines respectively. Meanwhile, plantation, power and oil & gas delivered positive earnings growth due to improved margins. An impairment loss of RM482.5m was recognized pursuant to the group’s assets in the UK and Bahamas, as the carrying amount exceeded the estimated recoverable values.

• Leisure & hospitality segment remains a drag. Given a wider net loss forecast on GENM as well as lower contribution from GENS, we further reduce our FY20F earnings forecast on GENT to RM224m (earlier this week, we slashed our forecast by 79% to RM285m). For FY21F, earnings are expected to recover sharply owing to low base factor, though we are not expecting businesses to operate at optimal capacity due to the requirement to comply with social distancing guidelines.

Source: PublicInvest Research - 22 May 2020