GenT recorded 1Q21 core LATMI of -RM318m (QoQ: RM25.0m, YoY: RM150.3). The results were below our (FY21f: RM762m) and consensus’ (FY21f: RM854m) expectations largely due to weaker than expected results from GenM and GenS. Its Malaysian and Singaporean operations will remain challenging in the near term as Covid-19 cases have been escalating at an alarming pace in South East Asia of late. Hence, we lower our TP to RM5.75 (from RM6.00) as we impute earnings and TP adjustments from GenM, GenP and GenS. We believe that investors will eventually start to look ahead its poor results as its UK and US operations are expected to record healthy sequential recoveries going forward.

Below expectations. GenT reported 1Q21 core LATMI of -RM318m (QoQ: RM25.0m, YoY: RM150.3). The results were below our (RM762m) and consensus’ (RM854m) expectations largely due to weaker-than-expected results from its Malaysian and Singaporean operations due to MCO2.0. 1Q21 core PATMI sum has been arrived after adjusting for RM13.3m of EIs, largely coming from (i) impairment losses: RM43.5m and (ii) reversal of impairments on receivables: -RM30.2m.

Dividends. None Declared, None SPLY.

QoQ. GenT slipped into a loss of -RM318m (from a core profit of RM25.0m) primarily due to (i) the implementation of MCO2.0 in Malaysia, which resulted in the closure of RWG for 25 days and a ban on inter-state travel for populous states and (ii) weaker contributions from GenS due to the absence of its regular visitors from its key markets in Asia.

YoY. GenT’s core loss of -RM318 (from a core profit of RM150m) was also attributable to the same reasons mentioned above.

Outlook. The gaming business in Malaysia and Singapore will continue to plague GenT as Covid-19 cases have been escalating at an alarming pace in South East Asia of late and we believe that it will remain challenging in the near-term. Nevertheless, its US and UK operations have almost resumed its full operations as the US and UK have achieved some degree of normalcy with high vaccination rates and lower daily Covid-19 cases. Also, we believe that the opening of RWLV on the 24th of June would be able to cushion some of its losses stemming from GenM. We remain hopeful on the long-term prospects of GenT as we expect it to record an exponential recovery in FY22.

Forecast. We cut our earnings by -96.1 (low base)/-25.9% for FY21/22f to factor in our adjustments of profit from its subsidiaries. The bulk of our earnings cut stems from our revision of GenM’s core loss from -RM74.2m to -RM959m.

Maintain BUY with a lower TP of RM5.75 (from RM6.00) with an unchanged discount of 50% to our SOP-derived valuation of RM11.47 after updating the TP changes for its subsidiaries. We believe that investors would look beyond FY21’s results as GenT is expected to record an exponential recovery in FY22. Its contribution from its US and UK business is also expected to partially mitigate its weak results from GenM and GenS in FY21.

Source: Hong Leong Investment Bank Research - 27 May 2021