Genting Malaysia (GENM) reported a 4QFY21 net profit of RM174.1m, its first profitable quarter since the start of the pandemic in 1QFY20. Following the resumption of operations at Resorts World Genting (RWG) on 30 September 2021, Malaysia’s leisure and hospitality segment delivered a decent earnings recovery in 4QFY21, posting an adjusted EBITDA of RM358.1m (4QFY20: RM130.8m). For full-year FY21, the Group’s core net loss was within market expectation but lower than our full-year forecast. This was mainly due to higher-than-expected contribution from Malaysian operations. We raise our FY22-23F earnings forecasts by 4-18% as we factor in higher contribution from Malaysia’s leisure and hospitality segment. Consequently, our SOTP valuation, which is based on 2-year average forward earnings, is revised to RM3.50 from RM3.25 previously. Maintain Outperform on GENM. A special dividend of 9.0sen per share was declared.

• 4QFY21 revenue jumped 81% YoY. Malaysia’s leisure and hospitality segment delivered a 49% increase in revenue due to higher business volume following the resumption of its operations on 30 September 2021. Revenue for 4QFY20 was impacted by the re-imposition of travel restrictions due to the spike in Covid-19 cases. Contribution from the UK & Egypt has also increased, driven by higher business volume for landbased casinos in the UK. In 4QFY20, operations in the UK were intermittently closed throughout the period amid a resurgence of cases in the country. Since the full lifting of Covid-19 restrictions in June 2021, the US & Bahamas continued to deliver stronger operating performance.

• First quarterly profit since the start of the pandemic. The Group posted a net profit of RM174.1m in 4QFY21, compared to a loss of RM240.8m. Stripping out impairment losses, gain on disposal and other non-operating items, core net profit stood at RM122.5m as all its leisure and hospitality businesses turned profitable in 4QFY21. We understand that the composition of VIP business at RWG has risen, which could be attributed to the closure of international borders that restricted the travelling of VIP customers to other casinos abroad.

• Outlook. As we believe Malaysia is not likely to reintroduce strict lockdown measures in the future, we should continue to see a gradual uptick in business volume at RWG in FY22F, driven mostly by local tourists following the opening of its outdoor theme park. Although we are forecasting a profitable FY22F after two years of setback, we expect earnings to recover to pre-pandemic level only in FY23F. This is because we believe RWG would continue to operate below its optimal level in FY22F as strict SOPs should still be in place. The key catalyst for GENM is the re-opening of international borders, which is likely to take place by 1H22.

Source: PublicInvest Research - 25 Feb 2022