GenM reported 1H22 core LATAMI of -RM25.9m (1H21: -RM851.8m), which we deem to be within expectations as we expect continued improvement in 2H22. GenM returned to profitability in 2Q driven by capacity ramp up and increase in footfall from subsided Omicron wave and foreign visitors from border reopening. Looking ahead, the recovery trajectory should continue for RWG from (i) hotel capacity ramp up; (ii) theme park capacity ramp up; and (iii) increase in foreign visitations. Maintain forecasts and BUY call with an unchanged TP of RM3.91 based on 5% discount to SOP value of RM4.12.

Within expectations. GenM reported 2Q22 core PATAMI of RM88.1m (1Q22: -RM114m; 2Q21: -RM387.6m), bringing 1H22’s sum to -RM25.9m (1H21: -RM851.8m). We deem the results to be within our and consensus full year forecasts of RM695.6m and RM646.6m as we expect continued improvement in 2H22 driven by capacity ramp up. 1H22 core PATAMI was arrived at after excluding net EIs of -RM111.5m mainly from impairment losses of -RM70.8m (largely from RW Bimini assets of -RM66.8m) and forex loss of -RM33.2m.

Dividends. 6 sen, ex-date: 12 Sep (2Q21: none). 1H22: 6 sen (1H21: none).

QoQ. Revenue increased by +26.4% mainly driven by the improvement in RWG (+42.4%) following (i) ramp up in operating capacity; and (ii) increase in footfall to 5.4m (+31.7% from 4.1m in 1Q22) due to Omicron wave subsiding and borders reopening. Consequently, core PATAMI rebounded to RM88.1m from -RM147.9m.

YoY/YTD. Revenue increased by +1.7x YoY and +1.7x YTD mainly driven by improvements in Malaysia (+4.5x YoY; +3.2x YTD) and UK (+1.1x YoY; +2.4x YTD). Revenue increase in Malaysia was driven by (i) there was a closure in RWG in June SPLY; (ii) contribution from SkyWorlds which commenced operations in Feb 2022; and (iii) increase in foreign visitors following borders reopening. Consequently, core PATAMI rebounded to RM88.1m in 2Q22 (vs. -RM387.6m in 2Q21) and -RM25.9m in 1H22 (from -RM851.8m in 1H21).

Outlook. GenM has finally returned to black mainly driven by capacity ramp up and increase in footfall from subsided Omicron wave and foreign visitors from border reopening. Looking ahead, the recovery trajectory should continue for RWG from (i) hotel capacity ramp up (room available as at July was 7.6k vs. 6k in June); (ii) theme park capacity ramp up (3 more rides by 4Q22); and (iii) increase in foreign visitations as more countries relax their border restrictions. The current weak local currency should bode well for foreign visitations. Furthermore, the opening of SkyWorlds theme park also allows RWG to attract a large and previously untapped Muslim market which represents c.63% of Malaysia population. GenM will be able to harness the full potential of SkyWorlds in 2H22 as capacity ramps up. The increased footfall to the theme park should have a positive spillover effect to the other venues in RWG.

Forecast. Unchanged.

Maintain BUY with an unchanged TP of RM3.91 based on 5% discount to SOP value of RM4.12. We continue to like GenM as we view RWG as one the prime beneficiaries with borders reopening, 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. Additionally, the current weak local currency is also a boon to RWG for both local and foreign visitations.

Source: Hong Leong Investment Bank Research - 26 Aug 2022