Genting Malaysia’s (GENM) 3QFY23 net profit surged 276% QoQ to RM177.4m, driven by a recovery in business volume of its leisure & hospitality segment. Core profit for 3QFY23 stood at RM218.7m compared to RM98.9m in 2QFY23. For cumulative 9MFY23, core profit of RM322.2m came in below our and market expectations at 65% and 61% of full-year estimates respectively. However, we maintain our forecasts as we expect a sequential growth in 4QFY23 earnings due to the year-end holiday and festive season. Our SOTP-based TP remains unchanged at RM3.00. Maintain Outperform.

• 3QFY23 revenue rose 9.5% QoQ, mainly due to stronger contribution from Malaysia (+10% QoQ) and the UK & Egypt (+26.8% QoQ). Resorts World Genting posted higher gaming and non-gaming revenue on the back of higher business volume. Similarly, the UK & Egypt also received stronger business volume.

• 3QFY23 core net profit expanded to RM218.7m, compared to the preceding quarter’s RM98.9m. This was mainly driven by stronger contribution from Malaysia and the UK & Egypt. However, the US & Bahamas posted a 7% QoQ drop in profit due to higher operating and payroll related expenses. Meanwhile, the share of losses in associates has narrowed from RM71m to RM33m in the current quarter.

• Outlook. The announcement of a 2% increase in the service tax from 6% to 8% is expected to have a negative impact on bottomline as gaming companies. However, we expect some offsetting impact arising from the 5% reduction in entertainment duty for theme parks, family recreation centres, indoor game centres and simulators. Meanwhile, it was reported that the group has started the construction work of a toll road at Gohtong Jaya, which means motorists going up the hill will be subject to toll charges in the future. We believe the toll charges would not be too costly to avoid affecting visitor arrivals at Resorts Word Genting. We reckon the toll collection is for the purpose of funding the frequent road/slope upkeep, maintenance as well as repair costs.

Source: PublicInvest Research - 24 Nov 2023