GenM reported FY20 core LATMI of -RM1,243m (YoY: RM1,311m) which was marginally above our and consensus full year forecasts (of -RM1,322m and - RM1,343m) largely due to better than expected contributions from its US operations. We believe that GenM should record better results sequentially based on the current timeline of vaccination rollouts and lower trend for Covid-19 cases of late but we choose to remain conservative as there are still ample risks associated with Covid-19 that could derail GenM’s recovery. GenM is already trading close to its 1-year high and has recovered by c.60% since its trough in Mar 2020. Maintain HOLD at TP of RM2.67 based on 8.5x FY21 EV/EBITDA.

Marginally above expectations. GenM reported 4QFY20 core LATMI of -RM191.2m (QoQ: -RM88.7m, YoY: RM216.2m), bringing FY20 core LATMI to -RM1,243m (from a profit of RM1,311m SPLY). We deem this marginally above our and consensus full year forecasts (of -RM1,322m and -RM1,343m) largely due to a better than expected recovery in its US operations. FY20 core LATMI sum has been arrived after excluding -RM1,160m of net EIs, which mainly includes -RM591m of impairments in its overseas operations, -RM139m deferred tax charge, -RM146m redundancy costs (rightsizing of workforce), -RM82m of pre-operating expenses.

Dividends. Declared special dividend of 8.5 sen/share (SPLY: 9 sen/share) bringing dividends declared for FY20 to 14.5 sen/share (SPLY: 15 sen/share). Final dividend for FY20 is expected to be announced in May 2021.

QoQ. Core LATMI widened to -RM191.2m (from -RM88.7m) largely due to lower gaming revenue from RWG as a result of stricter SOPs from escalating Covid-19 cases in 4Q20, partly mitigated by better contributions from its US operations.

YoY. Core LATMI of -RM191.2m (from core profit of RM216.2m) was largely due to sharp declines in gaming revenue from most of its business segments as a result of the Covid-19 pandemic.

YTD. GenM recorded a core LATMI of -RM1,243m (from a profit of RM1,311m) on the back of the ongoing pandemic coupled with limited operating capacity.

Outlook. Near term operations will continue to be challenging given the ongoing interstate travel ban and concerns over the Covid-19 outbreak. Despite the recent re opening of RWG on the 16th of February, inter-state travel bans are still in place since the implementation of MCO2.0 on the 13 Jan. GenM’s recovery trajectory will be dictated by the lifting of the inter-state travel restrictions as its gaming revenue are predominantly dependent upon visitors from states like KL, Selangor and Penang.

Forecast. No Changes

Maintain HOLD with TP of RM2.67 based on unchanged 8.5x FY21 EV/EBITDA. We believe that we are seeing signs of improvement for GenM due to the recent re opening of RWG on the 16 of Feb. However, as inter-state travel restrictions are still in place, we can expect to see subdued earnings for RWG. The re-opening of inter-state borders remains a key catalyst for GenM’s recovery in FY21. GenM’s share price has already recovered by c.60% since its trough in Mar 2020 as we believe that investors are expecting its business to normalise by the end of 1Q21.

Source: Hong Leong Investment Bank Research - 26 Feb 2021