We have turned positive on the long-term prospects of GenM as we believe that GenM is expected to see an exponential YoY profit growth in FY22. However, we believe that FY21 performance will be weaker than expected as the inter-state travel ban for populous states like the Klang Valley, Johor and Penang are still in place. However, we believe that investors would start to look beyond FY21 due to the timeline of vaccine rollouts and lower trend of Covid-19 cases. We opine that SkyWorlds theme park would also be a catalyst for GenM’s recovery in FY22 . Hence we roll forward our SOP valuations from FY21 to FY22, upgrading our HOLD call to a BUY call at TP of RM3.55.

Weathering through FY21. We believe that FY21 will continue to be very challenging for GenM as inter-state travel is still banned. We now expect the inter-state travel ban to be in place for 1 more month and this would imply a footfall of less than 15% for a total of 4 months for RWG since the inception of MCO2.0.

V shaped recovery is expected in FY22. We expect a significant YoY recovery for GenM in FY22 due to the timeline of vaccine rollouts and we are confident that Malaysia will achieve some form of normalcy in FY22. We believe that the public’s willingness to travel would be positively correlated with the vaccination rates in the country.

SkyWorlds theme park to boost footfall into RWG. SkyWorlds, which is slated to open by 1H21, features 9 movie and adventure inspired worlds that will include 26 rides and attractions with more to come in the future. Skyworlds currently owns the IPs (Intellectual Properties) for Rio and Ice Age and are planning on complementing existing IPs with homegrown IPs. The Company plans to introduce other IPs to the park as well in the future. Recall that GenM has reached a settlement with 20th Century Fox and Walt Disney in 2019 in relation to the development of its theme park, which was supposed to be named 20th Century Fox World. The settlement has allowed GenM a license to use certain Fox IPs. We believe that the main beneficiary from its SkyWorld theme park would be its casinos and occupancy rates for its hotels as families would frequent RWG more since it would be a place of attraction for both adults and kids.

Forecast. We downgrade FY21 earnings from RM669m to a loss of -RM74.2m due to the longer than expected inter-state travel ban while leaving our FY22 earnings assumption unchanged.

Upgrade to BUY at TP of RM3.55. We have upgraded our SOP-derived TP to RM3.55 (from RM2.67) despite our downgrade in FY21 earnings as we roll forward our valuation to FY22. We believe that investors would start to look ahead with plenty of positives in the pipeline like the (i) lifting of inter-state travel ban (ii) higher vaccination rate and lower fears of Covid-19 infections and (iii) opening of Skyworlds theme park.

Source: Hong Leong Investment Bank Research - 14 Apr 2021