GenM reported 1H21 core LATMI -RM837m (YoY: -RM963m), which was below our and consensus’ full year forecasts (of -RM959m and -RM378m) largely due to MCO 3.0/ Phase 1 as RWG was shut since 25 May 2021. We expect FY21 to remain challenging for GenM as RWG is still closed but we remain optimistic in the reopening of our economy due to the pace of vaccination. Furthermore, its overseas operations have recorded exponential improvements in 2Q21. Hence, we maintain our BUY call with a higher SOP based TP of RM3.28 (from RM3.05) despite the current quarter’s underperformance as we raise our EV/EBITDA multiples for its US (from 6x to 8x) and UK (from 8x to 10x) businesses.

Below expectations. GenM’s 2Q21 core LATMI of -RM373m (QoQ: -RM464m, YoY: - RM943m) and 1H21 core LATMI -RM837m (YoY: -RM963m) came in below our and consensus’ full year forecasts (of -RM959m and -RM378m) largely due MCO3.0/ Phase 1 and the ban in interstate travelling as RWG was closed since 25 May 2021. 1H21 core LATMI sum has been arrived after adjusting for -RM5.3m of EIs, mainly comprising of a gain on disposal on a subsidiary amounting to -RM64.3m and RM31.1m of impairments.

Dividends. None Declared Vs 6 Sen/share SPLY.

QoQ. Core LATMI narrowed to -RM373m (from -RM464m) largely due to an improvement in its UK and US businesses despite lower revenue and extended losses recorded from RWG.

YoY. Lower core LATMI of -RM373m (from core LATMI of -RM943m) was largely due to cost saving measures implemented over the MCO period and significantly better performance from its overseas operations.

YTD. Core Losses Narrowed From -RM963m to -RM837m Due to the Same Reasons Mentioned Above.

Outlook. Near term operations will continue to be challenging due to the implementation of movement restrictions and escalating Covid-19 cases of late as RWG was ordered to shut its doors since the 25th of May 2021. We are cognisant of the possibility of further delays in the reopening of the Malaysian economy and this is expected to plague RWG. However, we are confident that the ramp up in vaccination rates would enable us to return to some form of normalcy by 4Q21. Nevertheless, we are expecting a very weak 3Q21 as its casino may remain closed for the entire quarter. On a more positive note, it’s US and UK operations have recorded exponential improvements.

Forecast. We revised our FY21 core net loss forecast from -RM959m to -RM1,247m to factor in the weak results in 2Q21 and 3Q21 as RWG remains closed. Nevertheless, we have maintained our FY22-23f forecast as we remain optimistic on the reopening of the Malaysian economy in FY22.

Maintain BUY with a higher SOP based TP of RM3.28 (from RM3.05) as we upgrade our EV/EBITDA multiples for its US (from 6x to 8x) and UK operations (from 8x to 10x). We believe that FY21 is going remain extremely challenging for GenM but we remain optimistic on the reopening of our economy due to the current pace of vaccination rates. 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 RMCO in 2020. Furthermore, we expect its UK and US operations to continue to record improvements, as seen in 2Q21.

Source: Hong Leong Investment Bank Research - 27 Aug 2021