We attended the pre-opening preview of Genting Malaysia’s (GENM) outdoor theme park, Genting SkyWorlds. After multiple delays, the wait is almost over as the USD800m theme park has finally scheduled to open its doors to the public next month, in time for the peak season during the Chinese New Year festival. We view this positively as this should mark a gradual return to normalcy after numerous disruptions due to the pandemic. We are forecasting GENM to turn profitable this year after two years of setbacks. While we do not expect profit to revert to pre-pandemic levels in FY22F, we believe there are limited earnings risks as full lockdown is not likely to be re-introduced, considering the high vaccination rate achieved. We upgrade GENM to Outperform, with a 19% upside to our unchanged target price of RM3.25.

• Details of Genting SkyWorlds. Genting SkyWorlds is touted to be Southeast Asia’s most-anticipated theme park, spanning across an area of 26 acres with 26 rides and attractions. Resorts World Genting (RWG) has invested USD800m or RM3.2bn into the theme park. Visitors will get to enjoy rides and attractions inspired by movies and adventures i.e Ice Age, Rio, Robots, Epic, Studio Plaza, Eagle Mountain, Central Park, Liberty Lane and Andromeda Base. Apart from films franchised from 20th Century Studios, homegrown intellectual properties will also be featured and introduced.

• Focusing on local tourists for now. As international borders are likely to remain shut in the near term, RWG would be focusing on the local market in driving visitorship, perhaps in the next six months. We estimate visitor arrivals to increase to 23m and 27m people in FY22F and FY23F respectively, recovering from a low of 12.7m in FY20. Prior to the pandemic, RWG’s visitor arrivals hit 29m people in FY19.

• Earnings risk due to the pandemic. For the upcoming 4QFY21 results, we expect GENM to break even or perhaps chalk a small profit, a sharp improvement from a core net loss of RM303m in 3QFY21 following a full quarter impact of the MCO 3.0 lockdown. As Malaysia is not likely to re impose strict lockdown in the future, we should see a gradual uptick in business volume at RWG in FY22F, driven mostly by local tourists. We believe the key catalyst for GENM is the re-opening of international borders. Although this may not likely take place anytime soon given the spike in new Covid-19 cases globally, we believe the eventual re-opening of international borders is undeniable when new variants become less virulent. Over time, we observe that the severity of illness caused by Covid-19 infection has declined, which could be a function of higher vaccination rates and natural evolution of virus. Hence, we believe the worst is behind us and anticipate limited earnings downside risk from here, as far as Covid-19 impact is concerned.

• Any implication from troubles at Genting HK? As for any potential impact from the liquidation of Genting HK, we do not expect any major ramification given that there were no cross shareholdings except for Tan Sri Lim Kok Thay being a common shareholder. Also, based on its most recent annual report, it appears that there are no GENM shares pledged by the holding company as collateral, though 14.8% or 570m Genting Bhd shares have been pledged for financing.

Source: PublicInvest Research - 28 Jan 2022