RWG will close temporarily from 22 January to 4 February in-line with the government’s implementation of MCO in Pahang and GenM is expected to lose its main revenue source during the closed period. We have assume a 2 month closure and a c.20% fall in visitorship for RWG as we choose to remain conservative during this period of uncertainty. We have also assumed a 20% decrease in visitorship for its UK operations to factor in UK’s lockdown measures which were implemented in the first week of January. Overall, we cut our earnings forecast by 32% for FY21 while maintaining our FY22 forecast as we expect a V-shaped recovery in FY22. Maintain HOLD with a lower TP of RM2.27 (from RM2.43) based on 7.5x FY21 EV/EBITDA (unchanged).

NEWSBREAK

The government has announced that MCO will be implemented in various states including Pahang from 22 January to 4 February 2021. In line with this, RWG will be temporarily closed during this period. Essential resort-based services such as security, bomba, utilities and clinics will remain operational.

HLIB’s VIEW

RWG closure. This will be negative for the operations of GenM as the possibility of an extension of MCO is high. We view that the visitorship for RWG is expected to remain extremely subdued even if MCO restrictions in Pahang is lifted as the amount of cases in populous states like Kuala Lumpur, Selangor, Penang and Johor are still at very high levels. We have cut our YoY visitorship growth rate by c.20% as we have assumed a total effective lockdown period of about 2 months. Although it is still too early for us to gauge the effectiveness of the current MCO measures, we choose to be on the conservative side of things.

Lower UK visitorship expected due to lockdown measures and resurgence of Covid-19 cases. We also expect UK’s lockdown measures implemented in the first week of January to dampen its recovery in FY21. UK has hit its highest ever daily case recorded on the 8th of January (68,053 cases) but have since tapered down to below 40,000 cases on the 17th of January. With this, we have cut our YoY recovery growth rate by c.20% as well to factor in the aforesaid instance.

Steep V-shaped recovery expected in FY22. Despite our lower growth expectations in FY21, we expect a steep recovery in FY22 due to the roll-out of vaccines and better overall economic outlook, alongside a lower base effect.

Forecast. We cut our FY21 forecast by 32% to factor in our expectations on lower overall visitorship due to the resurgence of Covid-19 cases globally while maintaining our FY22 forecast as we are expecting a steep V-shaped recovery to happen in FY22.

Maintain HOLD with a lower TP of RM2.27 (from RM2.43). We have lowered our TP to RM2.27 (from RM2.43 previously) as we impute our lower EBITDA forecasts from our adjustments on visitorship in FY21 while leaving our EV/EBITDA multiple assumptions unchanged at 7.5x. We believe that investor sentiment would be muted at this juncture due to the uncertainties regarding the length of the lockdown period.

Source: Hong Leong Investment Bank Research - 22 Jan 2021