GenM reported 1Q21 core LATMI of -RM464m (QoQ: -RM191m, YoY: -RM20.4m), which was below our and consensus’ full year forecasts (of -RM74.2m and RM221m) largely due to MCO2.0 as RWG was shut for 25 days in 1Q21. We expect FY21 to be very challenging for GenM due to MCO3.0 and the escalating Covid- 19 cases recently. Hence, we revised our core net loss forecast from -RM74.2m to -RM959m to factor in the possibility of an MCO 3.0 extension and also cut FY22 earnings by 22% to factor in a slower recovery from Covid-19 in FY22. Nevertheless, we still expect GenM to record an exponential recovery in FY22 and we believe that investors will look beyond FY21. Maintain BUY with a lower SOP based TP of RM3.05 (from RM3.55).

Below expectations. GenM’s 1Q21 core LATMI of -RM464m (QoQ: -RM191m, YoY: - RM20.4m) came in below our and consensus’ full year forecasts (of -RM74.2m and RM221m) largely due MCO2.0 and the ban in inter-state travelling as RWG was closed for a total of 25 days in 1Q21. 1Q21 core LATMI sum has been arrived after adjusting for RM19.4m of EI, mainly comprising of RM7.3m of impairments.

Dividends. None Declared, None SPLY.

QoQ. Core LATMI widened to -RM464m (from -RM191m) largely due to lower gaming revenue from RWG as a result of MCO2.0, which lead to the closure of RWG’s casino for 25 days and the ban of inter-state travel for populous states like the Klang Valley, Penang and Selangor.

YoY. Core LATMI of -RM464m (from core profit of -RM20.4m) was largely due to sharp declines in gaming and hotel revenue from RWG as a result MCO2.0, partially mitigated by stronger performance from RWNYC.

Outlook. Near term operations will continue to be challenging due to the implementation of MCO3.0 and escalating Covid-19 cases of late as RWG was ordered to shut its doors on the 25th of May 2021. We are cognisant of the possibility of further extensions for MCO3.0 and this is expected to plague RWG. However, we are confident that the ramp up in the roll out of vaccines and stricter lockdown measures would enable us to return to some form of normalcy in the middle of 3Q21. Hence, we are expecting an even weaker 2Q21 due to MCO 3.0 (RWG was recently ordered to close) and the worsening Covid-19 situation in Malaysia. On a more positive note, its US and UK operations have almost resumed operations completely.

Forecast. We revised our FY21 core net loss forecast from -RM74.2m to -RM959m to factor in the weak results in 1Q21 and the possibility of an MCO3.0 extension (now slated to end on 7 June) due to the escalating Covid-19 cases of late. We have also trimmed our FY22f earnings by -22% to factor in a slower recovery from Covid-19 in FY22.

Maintain BUY with a lower SOP based TP of RM3.05. We believe that FY21 is going to be a challenging year for GenM due to the worsening Covid-19 situation in Malaysia. However, we expect GenM to record an exponential recovery when Covid-19 cases in Malaysia dissipates as footfalls for its casinos and hotels have recovered significantly when Malaysia moved from MCO to CMCO in 2020. Furthermore, we expect its UK and US operations to partially mitigate some of its losses from its Malaysian operations in FY21. Despite all its shortcomings, we believe that GenM would still offer attractive dividends as GenM has paid out a dividend of 14.5sen/share (DY: 5.3%) in FY20 despite recording a core loss of RM1,299m. We opine that investors will look beyond FY21 as GenM is expected to bounce back strongly when the Covid-19 pandemic dissipates.
Source: Hong Leong Investment Bank Research - 27 May 2021