We expect RWLV to record sequential EBITDA improvement backed by Las Vegas Strip gaming revenue growth, the gradual opening of its non-gaming outlets and the likely lifting of mask mandate in early 2022. We believe GenT overall prospect is improving as its core gaming segment business (GenM, GenS and RWLV) is expected to turnaround moving forward. In spite of that, share price is trading at undemanding valuation at >50% holding discount and -23.3% discount to its 2019 average share price (pre-Covid level). Maintain BUY with a higher TP of RM6.20 (from RM5.65) based on a lower 45% discount (from 50%) to SOP.

RWLV contribution to improve. RWLV chalked in its first full quarter results in 3Q21 recording revenue of USD175m (RM722.8m) and EBITDA of USD27m (RM110m). Its results were negatively impacted by the state’s face mask mandate in public indoor spaces regardless of vaccination status since 30 July 2021. Following the mandate, Las Vegas Strip gaming revenue took a dive in Aug declining -21.2% on a MoM basis (see Figure #1), but it regained some ground in Sep and Oct. Hotel occupancy rate for RWLV in 3Q21 stood at only 54.9% as several conventions were cancelled as a result of the mandate. During the quarter, Zouk Nightclub, spa, additional retail outlets and restaurants were opened, while more retail, restaurants and The Theatre are slated to open in 4Q. The Theatre is a music venue with capacity up to 5k people was opened on 1 Dec. Singers including Carrie Underwood, Katy Perry and Luke Bryan will have residencies in the theatre. We expect a weaker contribution from RWLV at the start due to heavy marketing spend to build the brand name and awareness while it also takes time for RWLV to optimize its operating structure and expenses. Nonetheless, RWLV should record sequential EBITDA improvement backed by (i) the overall robust growth in Las Vegas Strip gaming revenue (which is now above pre-Covid level despite the mask mandate); (ii) the openings of retail, restaurants and entertainment venues (note that non-gaming revenue typically make up half or more of Las Vegas Strip revenue); and (iii) the likely lifting of mask mandate in early 2022. Improved visitations will allow the RWLV to achieve better economies-of-scale.

Improving prospects. GenT will benefit from improvements from its gaming, leisure and hospitality segments from GenM, GenS and RWLV. GenM witnessed a strong return of local visitors to RWG since Malaysia lifted interstate travel ban on 11 Oct, while Singapore is progressively easing its border restrictions which will bode well for GenS as it relies heavily on international visitors (historically accounting for c.70-80% of visitations). Its US and UK operations continue to contribute positively towards its financials.

Management expertise underappreciated. Although the prospects of GenT are improving, current share price is still trading at -23.3% discount to its 2019 average share price (pre-Covid level) while its subsidiary GenM is already trading around its pre-Covid level (see Figure #2 and Figure #3). While GenT is exposed to diversified business segments, a majority (c.60%) of its value is still from core business in gaming, leisure and hospitality. The group has a solid track record of successfully managing and growing its business from Malaysia to its regional operations while navigating through different business cycles, most recently, the Covid-19 pandemic. Citing GenM’s associate, Empire as an example, through the group’s expertise, Empire’s financials improved as it turned EBITDA positive in 2Q21, while 3Q21 losses was narrowed to -RM30.9m (from -RM62m SPLY). Other than that, by leveraging on the group’s strong financial track record, Fitch Ratings recently upgraded Empire’s credit rating by two notches to ‘B+’ citing its close link to its parent company as part of the justification. Given the >50% holding company discount applied to the share price, it seems that the management expertise and track record are yet to be fully appreciated by the market.

Forecast. Unchanged.

Maintain BUY with a higher TP of RM6.20 based on a lower 45% discount (from 50%) to SOP. We lower our holding discount as we believe the overall prospect of its gaming segment is improving. We like GenT for its deep expertise and experience in managing the gaming and hospitality businesses and its well spread operations across different regions which help to mitigate regulatory and country risks. Furthermore, GenT provides an exposure to RWLV which we believe will have a strong growth potential in the longer term.

Source: Hong Leong Investment Bank Research - 23 Dec 2021