Genting Malaysia (GENM) posted a 2QY23 net profit of RM47.1m, compared to a loss of RM10.9m in 2QFY22. The improvement was mainly driven by higher profit contribution from Malaysia’s leisure & hospitality segment. For 1HFY23, core earnings of RM104m came in significantly below our and market full-year forecasts of RM647m and RM651m. This was mainly due to slower-than-expected recovery in gaming profit as well as higher-than-expected share of associated losses and interest cost. We cut our FY23-25F earnings by an average of 11%, factoring in higher associated losses and interest cost. We believe business volume would still pick up due to seasonality, leading to higher gaming profit in 2H23. Our SOTP-based TP is reduced to RM3.00. Maintain Outperform. An interim dividend of 6 sen per share was declared (2QFY22: 6 sen per share).

• 2QFY23 revenue rose 13.7% YoY, mainly due to stronger contribution from Malaysia (+17% YoY) and the US & Bahamas (+14% YoY). Resorts World Genting posted higher gaming and non gaming revenue on the back of higher business volume. The increase in revenue from the US & Bahamas was due to higher contribution from Resorts World New York City and higher number of cruise calls for Resorts World Bimini.

• Headline 2QFY23 net profit of RM47.1m versus a net loss previously. This was mainly due to improved operating performance following the reopening of the economy. However, share of associated losses increased by 72% YoY due to higher losses posted by Genting Empire Resorts. This was due to higher payroll and operating expenses as well as an increase in effective ownership from 66.6% to 76.3%.

• Land disposal plan still on the cards. After announcing that its proposed disposal of the Miami land for USD1.2bn (equivalent to RM5.6bn) had fallen through, the group’s plan remains intact and management is expected to review other opportunities to close on the sale. While no new bidders had been named to-date, management said there were other offers with some exceeding USD1bn. Given the high interest rate environment with the US possibly hiking rates further to tame inflation, we do not expect a deal to be sealed anytime soon, unless the group is willing to settle for a lower price tag.

Source: PublicInvest Research - 25 Aug 2023