■ Reiterate Add post our visit to Genting Malaysia’s main casino. Improving visitor arrivals set to drive earnings recovery in coming quarters, in our view.

■ Improvements in floor capacity and staffing suggest casino is well-positioned to benefit from the seasonally stronger tourist arrivals in 4Q23F, we think.

■ GENM is our top pick for exposure to a rebound in tourism. We believe valuation is undemanding at 13x CY24F P/E with c.6-7% dividend yield.

Trip to RWG reinforces our positive view on GENM’s outlook

Our recent weekend trip to Genting Malaysia’s (GENM) Resorts World Genting (RWG) property reaffirmed our thesis that the continued recovery of its key Malaysian operations (62% of 1H23 total revenue) will drive a robust 3-year EPS CAGR of 42% in FY22-25F (Figs 2, 12-17), based on our estimates. Findings from our visit suggest that both domestic and foreign tourist arrivals are on the path to full recovery (Fig 15), while operating capacity has largely returned to pre-pandemic levels. We observed non-gaming activities, such as restaurant dining and indoor theme park (i.e. Skytropolis), were largely packed (Figs 18-21) and the outdoor (SkyWorlds) theme park was busy with ongoing promotional campaigns. Based on our observation, RWG’s casino capacity seems to be fully restored to pre-pandemic levels, with more slot machines and gaming tables that are well-manned across both gaming floors (evidence of easing of croupier shortage). This puts RWG in good stead to benefit from the seasonally higher 4Q23F and 1Q24F traffic as tourist arrivals continue to pick up, in our view. Improving revenue generation on higher visitations should allow RWG’s EBITDA margin to come in above management’s guidance of 30-33% for FY23F (Fig 3), with 2Q23/1H23 EBITDA margins at 34.7%/33.0%, in our estimate.

Constructive progress in US casino licence bid a key catalyst

We view the revival of New York State Gaming Commission’s (NYSGC) Request for Application (RFA) process on 30 Aug 2023 (after a 6-month halt) for three downstate New York commercial casino licences as a major re-rating catalyst for GENM as we believe its Resorts World New York City (RWNYC) is a frontrunner. This is given RWNYC’s ability to generate extra gaming taxes for the state almost immediately (existing floor space ready to deploy 200-250 live table games) vs. a new casino, and its long-term operational track record in the area. We believe that should RWNYC win a licence in 2024F, the minimum required capital of US$1bn could be funded by the potential sales proceeds of its Miami land, for which it has received an offer in excess of US$1.23bn, as reported by The Edge. As such, we estimate this could lift our fair value by 8-14% to RM4.32-4.55 (Fig 7).

Reiterate Add with an unchanged SOP-based TP of RM4.00

We retain our Add call on GENM, our preferred pick for the revival of Malaysia’s tourism sector, with an unchanged SOP-based TP of RM4.00 (Fig 8). At our target price, GENM would be trading on 21x CY24F P/E and offers a 4% dividend yield. Downside risks include higher-than-expected operating costs and slower Malaysia gaming revenue recovery.

Source: CGS-CIMB Research - 19 Sep 2023