GenT recorded 9MFY20 core LATMI of -RM356.5m (from RM1.8bn SPLY) which was below expectations largely due to a slower than expected recovery in GenM. 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. We now expect FY20 to record a marginal core PATMI of RM4.2m (from LATMI of -RM248.3m) as we impute the earnings changes from GenM and GenS. Downgrade to HOLD (from Buy) with a slightly higher TP of RM4.29.

Below expectations. GenT reported 3QFY20 core PATMI of RM215.7m (from - RM722.5m QoQ and -63.1% YoY) bringing 9MFY20 core LATMI to -RM356.5m (from RM1.8bn SPLY). The results were below expectations largely due to a slower-thananticipated recovery in GenM (in its UK and US operations). 9MFY20 core PATMI sum has been arrived after excluding -RM692.6m of EIs, largely stemming from impairment losses.

Dividends. None declared.

QoQ. A core PATMI of RM215.7m was recorded (from -RM722.5m QoQ) which was an improvement largely due to the lack of operations in 2QFY20 coupled with a decrease in interest expense.

YoY. Core PATMI decreased -63.1% on the back of weaker contributions from all segments (except Plantation and Others) due to the ongoing pandemic coupled with limited operating capacity in its Gaming operations.

YTD. GenT recorded a core LATMI of -RM356.5m (from RM1,792.8m) largely due to the adverse impact of operation shutdowns during 2QFY20 and a weak 1Q/3Q caused by the fear of Covid-19. Last year (9MFY19) was also supported by an exceptionally higher hold percentage in its gaming operations.

Resorts World Las Vegas (RWLV). The construction of RWLV is currently ongoing despite the Covid-19 challenges. Total development and land cost as of 3QFY20 stands at c.USD2.7bn (estimated total project cost USD4.3bn). 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. Nonetheless, we note that GenS has actually been receiving a good response from its local visitors and should continue to do so in FY21 with the outbreak being very much contained in the country. For GenP, management guided FY21 FFB output growth of 5-8%, which will be driven by Indonesia operations. 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 marginal core PATMI of RM4.2m (from LATMI of -RM248.3m) as we impute the earnings changes from GenM and GenS.

Downgrade to HOLD (from Buy) with a slightly higher TP of RM4.29 (from RM4.26) with an unchanged discount at 60% to our SOP-derived valuation of RM10.72 after updating the TP changes in its subsidiaries. Since share price has risen 42% since 9 Nov, we believe the risk and reward are fairly balanced at this juncture.

Source: Hong Leong Investment Bank Research - 27 Nov 2020