GenT’s 1QFY20 core PATMI of RM159.4m (-69.1% QoQ, -76.5% YoY) were below expectations largely due to lower than expected contributions from its gaming operations from both GenM and GenS. We gather that construction works for Resorts World Las Vegas (RWLV) are ongoing with social distancing measures and its opening date is still targeted for Summer 2021. Long-term prospects will be supported by the opening of RWLV in 2021, opening of GenM’s OTP in 2021, and GenS’ potential exposure in Japan (subject to winning the IR bid). We decrease our FY20/21 earnings estimates by -54.9%/-16.9%, respectively as we impute the earnings changes from GenP, GenM and GenS. We introduce FY22 core PATMI forecast at RM2,116.4. Maintain BUY with a slightly lower TP of RM4.77.

Below expectations. GenT reported 1QFY20 core PATMI of RM159.4m (-69.1% QoQ, -76.5% YoY), forming 11.8% and 12.3% of our and consensus full year forecasts, respectively. The results were below expectations largely due to lower than expected contributions from its gaming operations from both GenM and GenS. 1QFY20 core PATMI sum has been arrived after excluding -RM291.7m of EIs, largely stemming from impairment losses. No dividends were declared.

QoQ/YoY. Core EBITDA dropped -35.2%/-40.6% to RM1,208.7m mainly due lower contribution from its gaming operations from GenM and GenS amidst the Covid-19 outbreak but was partially shielded by improved contributions from its Plantation and Oil & Gas segments. Subsequently, core PATMI dropped -69.1%/-76.5% to RM159.4m in tandem and was further hit by a lower share of results from JV and Associates coupled with a higher effective tax rate due to non-deductibles.

Share price taken a hit. The ongoing Covid-19 outbreak has been impacting the gaming industry in all regions, which led to investors fleeing gaming related stocks. Gaming operations have been put to a halt in over the past months with the ongoing Covid-19 curbing measures taking place internationally. Nonetheless, we believe GenT’s YTD share price drop of 33% has more than priced in the near-term impact of Covid-19. We gather that construction works for Resorts World Las Vegas (RWLV) are ongoing with social distancing measures and its opening date is still targeted for Summer 2021. Long-term prospects will be supported by the opening of RWLV in 2021, opening of GenM’s OTP in 2021, and GenS’ potential exposure in Japan (subject to winning the IR bid).

Forecast. We decrease our FY20/21 earnings estimates by -54.9%/-16.9%, respectively as we impute the earnings changes from GenP, GenM and GenS. We introduce FY22 core PATMI forecast at RM2,116.4m. Maintain BUY with a slightly lower TP of RM4.77 (from RM4.80) as we impute a higher discount at 55% (from 50%) to our SOP-derived valuation of RM10.60 to reflect the uncertainty in duration of Covid-19’s impact. The increase in discount has been offset by the higher a TP for GenS, leading to a relatively unchanged TP. By taking GenT’s market cap and dividing it by the market cap of its listed subsidiaries (adjusted for stake), GenT is currently trading at only 0.6x of its effective subsidiary ownership value, or at -3SD below its 10-year mean (Figure #3). Note that this multiple metric has not taking into account the additional value of GenT’s other unlisted revenue drivers which would further contribute to its fair value (e.g. power, O&G, management fees, holding company net cash position). As such, we believe GenT remains a deep value stock with its compelling valuations, positive longer-term outlook and a decent dividend yield of 4%.

Source: Hong Leong Investment Bank Research - 28 May 2020