GenT recorded FY21 core LATAMI of -RM1.36bn (FY20: -RM319.4m). The results were below expectations mainly due to higher-than-expected share of losses from its associates. We increase our FY22/23 earnings forecasts by 19.5%/4.4% and raise our TP to RM6.25 (from RM6.20) as we impute earnings and TP upgrades from GenM and GenP. Despite the results disappointment, we view that the prospects of GenT are improving going in to FY22 as its gaming and hospitality business as well as plantation segments are showing positive improvements.

Below expectations. GenT reported 4Q21 core LATAMI of -RM305m (3Q21: -RM347.9m; 4Q20: RM37.1m) which brought FY21’s sum to -RM1.36bn (FY20: -RM319.4m). The results were below our (-RM582.2m) and consensus (-RM244.4m) expectations mainly due to higher-than-expected share of losses from its associates. FY21 core LATAMI sum was arrived after adjusting for +RM8.7m of EIs, largely coming from (i) net impairment losses (+RM552.8m); (ii) gain on disposal of a subsidiary (-RM184.1m); (iii) reversal of receivables impairment (-RM56.8); and (iv) FV gain on financial assets (-RM133.5m).

Dividends. 11 sen, ex-date: 14 Mar 2022 (4Q20: 8.5 sen). FY21: none (FY20: 22 sen).

QoQ. Revenue increased by +38.1% contributed by its leisure and hospitality (+42.5%), plantation (+44.9%), property (+3.5x) while partially offset by power (-26%). Leisure and hospitality was mainly lifted by Malaysia (+5.9x) as RWG reopened during the quarter. Plantation was lifted by higher palm product prices which more than offset the lower sales volume, while property segment improvement was due to disposal of land in Malaysia. Nonetheless, core net loss only lowered marginally to -RM305m (from -RM347.9m) as it was dragged by higher share of losses from its associate Meizhou Wan power plant in China as a result of higher coal costs despite better generation.

YoY. Revenue increased +58.7% on the back of stronger contributions from all its segments due to same reasons as QoQ paragraph above. Nonetheless, the group recorded core LATAMI of -RM305m (from RM37.1m) due to (i) higher depreciation and amortization cost from RWLV (+32.4%); and (ii) higher share of losses in from its associate Meizhou Wan power plant in China as a result of higher coal costs despite better generation.

YTD. Revenue increased 17% on the back of stronger contributions from all its segments. Nonetheless, core net loss widened to -RM1.36bn (from -RM319.4m) due to (i) higher finance cost incurred by RWLV upon commencement of its operations (+19.2%); (ii) higher depreciation and amortization cost from RWLV (+ 13.9%); and (iii) higher share of losses in from its associate Meizhou Wan power plant in China as a result of higher coal costs despite better generation.

Outlook. For GenM, the opening of SkyWorlds theme park and the NRC push for borders reopening should bolster for increased visitations to RWG. For GenS, the progressive reopening of borders via VTL as well as the lifting of safe distancing restriction in mask-on settings will bode well for its visitations and boost its operating capacity. For RWLV, masks were no longer required in Las Vegas’ casinos starting 10 Feb, while social activities in the rest of the US are also returning to pre-pandemic normalcy as witnessed in the Super Bowl game which attracted >70k crowd in the stadium who are almost entirely maskless. Furthermore GenP is also currently benefitting from elevated palm product prices which should sustain in the near term supported by the supply tightness of palm oil and other substitute oils and fats. All in all, we expect the performance of GenT should improve going in to FY22 as its gaming and hospitality business and plantation segments are showing positive improvements.

Forecast. Despite the results shortfall, we increase our earnings by 19.5%/4.4% for FY22/23 to factor in our adjustments of profit from its subsidiaries which are poised to benefit from further reopening.

Maintain BUY with a higher TP of RM6.25 (from RM6.20) with an unchanged discount at 45% to our SOP-derived valuation after updating the TP changes for its subsidiaries. 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 - 25 Feb 2022