GenT recorded 1HFY20 core LATMI of -RM489.7m from RM1.2bn YoY. We remain hopeful on the long-term prospects which 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 now expect FY20 to record a loss of -RM248.3m (from RM609.7m) and lower our FY21/22 earnings by -30.4%/-7.8%. Maintain BUY but with a lower TP of RM4.26 as we impute a higher discount at 60% (from 55%) to our SOP-derived valuation of RM10.64.

Below expectations. GenT reported 2FY20 core LATMI of -RM649.1m (from RM159.4m QoQ and RM580.4m YoY) bringing 1HFY20 core LATMI to -RM489.7m (from RM1.2bn YoY). The results were below expectations largely due to higher than expected costs incurred in both GenM and GenS coupled with the lack of revenue sources during its operation shutdowns. 1HFY20 core PATMI sum has been arrived after excluding -RM428.7m of EIs, largely stemming from impairment losses.

Dividends. Declared interim dividend of 6.5 (2QFY19: 6.5) sen per share, going ex on 10 Sep 2020.

QoQ/YoY. A core LATMI of -RM649.1m was recorded (from RM159.4m QoQ and RM580.4m YoY) largely due to the absence of revenue sources from GenM and GenS operations coupled with its unavoidable operating expenses but was partially mitigated by a tax deductible.

YTD. A core LATMI of -RM489.7m was recorded (from RM1.2bn YoY) led by the decline in contributions from all segments except the Plantation segment. Both GenM and GenS had weak performances in 1QFY20 and recorded losses in 2QFY20.

Resorts World Las Vegas (RWLV). The construction of RWLV is currently ongoing despite the Covid-19 challenges. Total development and land cost as of 2QFY20 stands at c.USD2.4bn (estimated total project cost USD4.3bn). As of 13 Aug, RWLV has completed the curtain wall for all towers except the crane leave out areas. The targeted opening in Summer 2021 is maintained for now.

Outlook. The gaming business remains challenging in the near-term despite its reopening in most places largely due to the limited operating capacity alongside fear of Covid-19. For GenP, management expects a stronger 2H (on the back of yield recovery) which would bring full-year FFB output to likely come in flat vis-à-vis FY19’s FFB output of c.2.2.m mt. We remain hopeful on the long-term prospects which 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 now expect FY20 to record a loss of -RM248.3m (from RM609.7m) and lower our FY21/22 earnings by -30.4%/-7.8% as we impute the earnings changes from GenP, GenM and GenS.

Maintain BUY with a lower TP of RM4.26 (from RM4.95) as we impute a higher discount at 60% (from 55%) to our SOP-derived valuation of RM10.64 to reflect the ongoing impact of Covid-19 towards its operations. Nonetheless, 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. Note that this multiple metric has not taken 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 while yielding 4.5%.

Source: Hong Leong Investment Bank Research - 28 Aug 2020