GenM reported FY21 core LATMI of -RM840.3m (FY20: -RM1.24bn) which was above expectations due to stronger-than-expected contribution from RWG. We increase FY22 earnings by +4.1% to account for higher contribution from RWG. Maintain BUY with a higher SOP based TP of RM3.69 (from RM3.61) as we updated our earnings forecasts. We continue to like GenM as we believe its prospects are improving with the return of crowd to RWG and the potential border reopening. With the addition of SkyWorlds theme park, RWG will be able to attract a bigger and more diverse crowd from both gaming and non-gaming visitors. Furthermore, we expect its UK and US operations to continue to record positive contributions as seen in 4Q21.

Above expectations. GenM reported 4Q21 core PATAMI of RM279.1m (3Q21: -RM282.4m; 4Q20: -RM191.2m) which brought FY21’s sum to -RM840.3m (FY20: -RM1.24bn). The results was above our (-RM934.3) and consensus (-RM1.04bn) expectations due to stronger-than-expected contribution from RWG. FY21’s core LATAMI sum was arrived after adjusting for +RM106.5m of EIs, comprising of (i) PPE write-off (+RM23.2m); (ii) gain on disposal of PPE (-RM5.5m), (iii) impairment losses (+RM240.5m); (iv) redundancy costs (+RM24.2m); and (v) gain on disposal of subsidiaries (-RM184.1m).

Dividends. 9 sen, ex-date: 14 Mar 2022 (4Q20: 8.5 sen). FY21: 9 sen (FY20: 14.5 sen).

QoQ. Revenue increased by +1.3x mainly lifted by Malaysia operations (+5.3x from a low base) as RWG has reopened on 30 Sep 2021 while inter-state travel restrictions were lifted on 11 Oct 2021; as well as property (+5.1x) due to land disposal proceeds in Malaysia amounting to RM105.7m. Consequently, the group’s core net profit rebounded to RM279.1m (from -RM282.4m) in line with the top line improvement.

YoY. Revenue increased by +81.5% in line with the improvements in its gaming segments in Malaysia (+49.2%), UK (+2.7x) and US (+42.9%) as well as property (+6.1x). Revenue was higher in Malaysia as travel restrictions were imposed in most states from 14 Oct 2020 in SPLY. UK improvement was due to (i) improved performance in its land-based casinos since it reopened in mid-May 2021; and (ii) its land-based casinos were intermittently closed in SPLY. The improvement in property segment was due to same reason as mentioned in QoQ paragraph above. Malaysia segment recorded a higher EBITDA margin of 37% (vs. 20% SPLY) due to luck factor and lower operating expenses. Core net profit rebounded to RM279.1m (from -RM191.2m) due to top line improvement and better EBITDA margin in Malaysia segment.

YTD. Revenue declined -8.2% dragged by Malaysia operations (-51.6%) while partially offset by UK (+63.3%), US (+1.2x) operations and property (+1.4x). Malaysia’s decline was due to longer closure period of c.5 months (vs. 3 months SPLY). US rebounded strongly as RWNYC was closed for 6 months in SPLY. UK improvement was due to shorter closure period of 4.5 months (vs. 6 months SPLY). The improvement in property segment was due to same reason as mentioned in QoQ paragraph above. Despite the decline in revenue, core net losses narrowed to -RM840.3m (from -RM1.24bn) due to (i) lower operating expenses, payroll cost from reduced headcount in Malaysia; and (ii) lower share of losses from associate Empire of -RM183.8m (from -RM285.1m).

Outlook. We expect visitations to RWG to remain strong in the next quarter as (i) the long-awaited SkyWorlds theme park had finally opened on 8 Feb; and (ii) the seasonally higher footfall to its casino during CNY season. Furthermore, the National Recovery Council (NRC) is also pushing for a quick reopening of Malaysia’s borders. We view RWG as one the prime beneficiaries once borders reopens, especially with the addition of theme park that complements its gaming attraction, making it an attractive tourism spot that could capture visitors from all walks of life.

Forecast. We increase FY22 earnings by +4.1% to account for higher contribution from RWG.

Maintain BUY with a higher SOP based TP of RM3.69 (from RM3.61) as we updated our earnings forecasts. We continue to like GenM as we believe its prospects are improving with the return of crowd to RWG and the potential border reopening. With the addition of SkyWorlds theme park, RWG will be able to attract a bigger and more diverse crowd from both gaming and non-gaming visitors. Furthermore, we expect its UK and US operations to continue to record positive contributions as seen in 4Q21.

Source: Hong Leong Investment Bank Research - 25 Feb 2022