Genting Bhd (GENT) reported headline net loss of RM786.1m for 2QFY20 due to lower contribution from all business segments, particularly the leisure & hospitality segment following an extended period of lockdown to contain the spread of Covid-19. Having adjusted for non-operating items, GENT’s 1HFY20 core net loss worked out to be RM352m, compared to our and consensus full year net profit forecast of RM182m and RM515m respectively. Given the larger-than-expected losses due to temporary closure of operations, we slash our FY20F projection to a net loss of RM613m while retaining our FY21-22F earnings forecasts. Not all is gloom however as we see some YoY earnings growth from the plantation division on higher palm product prices. We maintain our Neutral rating with an unchanged TP of RM4.20, which is based FY21F. Despite a weak set of results, an interim dividend of 6.5sen per share was declared.

• 2QFY20 revenue fell 80% YoY. Malaysia’s leisure & hospitality business delivered a 96% drop in revenue due to the impact of Covid-19 which resulted in a temporary closure of all businesses. Contribution from Malaysia, Singapore and the UK fell by more than 90% YoY while the US and Bahamas was further affected by a change in accounting estimate on revenue recognition. Plantation was the best-performing division, posting a 10% growth in revenue on higher palm product prices. Meanwhile, power revenue was dragged by lower net generation as a result of an unscheduled plant shutdown. The oil & gas segment was hit by lower crude oil prices.

• 2QFY20 LBITDA stood at RM578.7m. The leisure & hospitality segment posted a loss of RM841.4m compared to a profit of RM1,752m in 2QFY19. Malaysia and Singapore accounted for the bulk of the losses at 65%. Only two segments posted positive earnings growth i.e. plantation and oil & gas due to higher palm product prices and hedging gain on oil prices.

• Outlook. As borders remain closed and entry into casinos still restricted, operations of the leisure & hospitality segment should continue to face challenges over the next 1-2 years. Although FY21F earnings are expected to recover sharply owing to low base factor, we are not expecting businesses to revert to normalcy anytime soon. Meanwhile, the recent selldown on the stock was triggered by investors’ concern on the possibility that the woes at sister company, Genting HK, may extend to other listed arms where some form of bailout could take place. We believe GENT will not intervene and risk damaging its reputation to aggravate the weak sentiment already inflicted by the Covid-19 pandemic.

Source: PublicInvest Research - 28 Aug 2020