GenM reported 1HFY20 core LATMI to -RM795m (from RM737m YoY) which was below expectations due to larger than expected costs incurred and a now weaker recovery anticipated in 2HFY20. Status of operations are as follows: (i) RWG resumed operations from mid-June; (ii) UK resumed most of its casinos from mid-Aug; and (iii) US remains closed until further notice. We widen our FY20 forecasted losses to -RM709.6m (from -RM331m) and lower our FY21 earnings by -28.4% and maintain HOLD with a lower TP of RM2.43 based on an unchanged 10% holding discount.

Below expectations. GenM reported 2QFY20 core LATMI of -RM793.2m (from - RM1.8m QoQ, RM359.7m YoY), bringing 1HFY20 core LATMI to -RM795m (from RM737m YoY). We deem this below our and consensus full year forecasts (of - RM330m and -RM226.9m) due to larger than expected costs incurred and a now slower recovery anticipated in 2HFY20. 1HFY20 core PATMI sum has been arrived after excluding -RM523.4m of EIs, which mainly includes -RM360m of impairments in its overseas operations, -RM71m redundancy costs (rightsizing of workforce), - RM40m of pre-operating expenses, and -RM46m of one-off refinancing costs.

Dividends. Declared interim dividend of 6.0 (2QFY19: 6.0) sen per share, going ex on 10 Sep 2020.

QoQ/YoY. Core LATMI of -RM793.2m (from -RM1.8m and RM359.7m) was recorded largely due to the lack of operations during the reporting quarter coupled with unavoidable operating costs and higher interest expense.

YTD. GenM recorded a core LATMI of -RM795m (from RM737m) largely due to the adverse impact of operation shutdowns during 2QFY20 and a weak 1QFY20 caused by the fear of Covid-19. Last year (1HFY19) was also supported by an exceptionally higher hold percentage in its gaming operations.

Outlook. Despite the resumption of some operations, 2HFY20 will continue to be challenging given the ongoing concerns over the Covid-19 outbreak. The status of operations are as follows: (i) RWG resumed operations from mid-June; (ii) UK resumed most of its casinos from mid-Aug; and (iii) US remains closed until further notice. We gather from management that there is still no indication at this juncture with regards to the reopening of its US operations.

RWG. On the local front, visitor arrivals have been seeing signs of improvements since its opening on 19 June; visitor arrivals per day now hovers at 45k/day from 30k/day initially (averaging at c.40k/day over the 66 days of opening). Number of rooms opened at the hilltop stands at 4.7k (out of 10.5k total) with an occupancy of 90% from the initial 1.8k during the reopening. This can be largely attributed to the promotional packages provided and rooms given to its members. Entry to the casino (currently operating at 50% capacity) is only limited to members at the moment (5m members as of FY19).

Forecast. We widen our FY20 forecasted losses to -RM709.6m (from -RM331m) and lower our FY21 earnings by -28.4% as we impute a slower recovery in gaming volume alongside lower margins to reflect the impact of the outbreak.

Maintain HOLD with a lower TP of RM2.43 (from TP: RM2.86) based on an unchanged 10% holding discount as we impute our earnings changes. We expect share price to potentially remain subdued in the near-term given impact of Covid-19 towards its overall operations. Our hold call and TP is already premised upon FY21 numbers (pegged to -1SD below the 10-year mean).

Source: Hong Leong Investment Bank Research - 28 Aug 2020