After returning to the black in the previous quarter, Genting Malaysia (GENM) reverted to losses again in 4QFY22, posting a net loss of RM394m due to the impact of net foreign exchange translation and impairment losses. Operationally, Malaysia and the US & Bahamas delivered better performance due to higher business volume following the removal of Covid-19 restrictions. Stripping off non-operating items, FY22 core net profit came in below expectations, making up only 48% and 37% of our and consensus full-year profit respectively. We cut our FY23F earnings forecast by 10% to account for lower contribution from Resorts World Genting (RWG), as we expect a weaker recovery of international travels. As such, our TP is reduced from RM3.50 to RM3.30. We maintain our Outperform call on GENM as we believe earnings should continue to recover from the aftermath of the Covid-19 pandemic.

• 4QFY22 revenue jumped 29% YoY, mainly due to stronger contribution from Malaysia (+65% YoY) and the US & Bahamas (+31% YoY). The opening of SkyWorlds theme park has contributed to higher non-gaming revenue while business volume improved following the removal of travel restrictions. The US & Bahamas also chalked higher non-gaming revenue, contributed by the new Hyatt Regency JFK Airport hotel. However, weaker consumer confidence and rising inflationary pressures have led to a 23% drop in the UK & Egypt revenue.

• Losses due to forex translation and impairment. Despite posting stronger revenue, GENM turned loss-making again due to foreign exchange translation losses amounting to RM183.1m and an impairment of RM293.8m on assets in the US & Bahamas. Stripping out non-operating items, the group’s core net profit for 4QFY22 stood at RM83m (FY22 of RM149m versus RM1bn loss in FY21).

• To benefit from gradual recovery of tourism industry. RWG should continue to chalk better performance in FY23F with the return of foreign tourists, particularly Chinese tourists following the reopening of its international borders. In FY19F, prior to the pandemic, Chinese tourists accounted for ~3% of RWG’s total visitors of 29m. Although this does not appear to be significant, we believe the spending power of Chinese tourists is generally higher than other nationalities. Having said that, we reckon that the return of these Chinese tourists would not be instant but over the next 1-2 years as the overall consumer confidence is still bogged down by the fear of recession, which is affecting the global economies.

Source: PublicInvest Research - 24 Feb 2023