RAM Ratings revises Genting, GenM's outlook from negative to stable

KUALA LUMPUR (Sept 15): RAM Rating Services Bhd (RAM Ratings) on Thursday revised the outlook for Genting Bhd and Genting Malaysia Bhd (GenM) from negative to stable, and reaffirmed their AA1 ratings.

The revision is premised on the expectation that the group remains on track to meet its rating thresholds in the financial year ended Dec 30, 2023 (FY23), supported by better than expected recovery traction and balance sheet and liquidity positions in FY21.

"We expect more gradual recovery up to fiscal 2024, factoring in potential downside risks from a slowdown in economic growth or possible recession in Genting’s main operating regions, and protracted constraints affecting visitor traffic and operations," the rating firm said in a statement.

“Uncertainty from new Covid-19 variants may potentially add to these risks,” it added.

According to RAM Ratings, Genting turned in an overall stronger than anticipated operating performance in FY21.

The group recorded revenue of RM13.53 billion — 20% higher than RAM Ratings' projection of RM11.56 billion — and operating profit before depreciation, interest and tax of RM2.59 billion, 25% more than the expected RM2.13 billion.

The outperformance was due to strong recovery in operations in Malaysia, the UK and the US when substantial pandemic-related restrictions were lifted, aside from a lower cost base established during the pandemic.

“Improved operating cashflow, together with capital expenditure and a dividend outflow that were lower than expected, led to net debt of RM20.08 billion as at end-December 2021, significantly reduced from the projected RM24 billion.

“Consequently, the key metrics of net gearing and funds from operations (FFO) net debt cover at 0.38 times and 0.14 times respectively were healthier than anticipated. The lower net debt provided Genting with greater headroom to meet rating thresholds,” it said.

Going into FY24, RAM Ratings foresees that the group's net debt would continue to rise, albeit at a slower pace, causing net gearing to peak at just below 0.45 times.

“Given the completion of Resorts World Las Vegas and major rejuvenation work at Resorts World Genting, the group’s yearly capex will markedly decline to RM4.5 billion, the bulk of which will be spent on Resorts World Sentosa’s SG$4.5 billion renewal programme.

“We also assumed dividend payments of up to RM2 billion annually. FFO net debt coverage is projected to improve to above 0.3 times from next year, backed by a gradual improvement in earnings,” it said.

Additionally, Genting’s ratings continue to be anchored by its solid market position, with geographically diversified gaming businesses that include a monopoly in Malaysia, duopoly in Singapore and a leading video gaming machine operator in Northeastern US.

“Plantation, power generation, property and oil and gas businesses also afford the group some degree of diversification.

“Genting’s strong liquidity profile is another key rating strength. As at end-June 2022, the Group held RM21.25 billion in cash and cash equivalents against short-term debts of RM2.49 billion.

“GenM’s ratings are aligned with the group’s, considering the close relationship of the two entities and anticipated parental support from Genting when required,” it added.

Genting’s share price ended three sen or 0.67% lower at RM4.47, bringing it a market capitalisation of RM17.3 billion, whereas GenM’s share price finished unchanged at RM2.88 billion, valuing it at RM17.1 billion.