GenT recorded 2Q22 core PATAMI of RM168.1m, bringing 1H22’s sum to -RM26.3m (1H21: -RM708.1m). The results were within our and consensus expectations. The return to black in 2Q was driven by a broad based improvement across all its business segments. Notably, RWLV chalked in record high revenue and EBITDA on the back of strong Las Vegas travel trends. We tweaked our forecasts for FY22/23/24 by -4.7%/-3.2%/-1.8% as we impute forecast changes from GenS and GenP. Maintain BUY with a slightly higher TP of RM6.55 (from RM6.50) based on a 45% discount to our SOP-derived value of RM11.87.

Within expectations. GenT recorded core PATAMI of RM168.1m (1Q22: -RM194.4m; 2Q21: -RM399.6m), bringing 1H22’s sum to -RM26.3m (1H21: -RM708.1m). We deem the results within ours and consensus expectations of RM866.4m and RM932.5m full year forecasts as we expect continued improvement in results in 2H22 mainly from RWG and RWS. 1H22 core PATAMI was derived after excluding net EIs of -RM232.9m mainly from impairment loss (-RM143.9m), FV loss on derivatives (-RM56.5m), FV loss on financial assets (-RM24.6m).

Dividends. 7 sen (2Q21: none). 1H22: 7 sen (1H21: none).

QoQ. Revenue increased by +34.9% contributed by all business segments. Adjusted EBITDA for leisure and hospitality increased by +48.1% was mainly driven by (i) Malaysia and Singapore due to capacity ramp up and borders reopening; and (ii) RWLV as the preceding quarter was affected by Omicron wave which negatively impacted footfalls. Adjusted EBITDA for plantation improved by +55.3% due to higher FFB production and better margins from downstream segment. Consequently, core PATAMI rebounded to RM168.1m (from -RM194.4m).

YoY/YTD. Revenue increased by +93.6% YoY and +90.8% YTD contributed by all business segments. Adjusted EBITDA for leisure and hospitality improved substantially (+1.1x YoY; +1.2x YTD) mainly driven by (i) RWG was closed in June SPLY; (ii) UK following the reopening of its land based casinos since mid-May 2021. Adjusted EBITDA for plantation (+54.6% YoY; +60.4% YTD) and O&G (+80.8% YoY; +63.3% YTD) segments also enjoyed a strong improvement due to higher palm product prices and oil prices. Consequently, core PATAMI rebounded to RM168.1m in 2Q22 (from -RM194.4m in 1Q22) and -RM26.3m in 1H22 (from -RM708.1m in 1H21).

RWLV recorded 2Q22 revenue of RM880m (+28.2% QoQ) and adjusted EBITDA of RM172.2m (+204.8% QoQ). The record high revenue and adjusted EBITDA was due to the seasonally higher summer months as well as the strong Las Vegas travel trend. 2Q22 average hotel occupancy rate improved to almost 90% (from around 70% in 1Q22). Management is optimistic that the group can sustain the strong performance to 2H22 given (i) the strong return of convention travellers; (ii) resumption of international travels; and (iii) the addition of underground transportation system that connects RWLV to the convention centre with travel time of only a few minutes.

Outlook. We believe the next leg of recovery for the group’s leisure and hospitality segment will come from the pent-up traveling demand from international visits. While China’s Covid zero policy would mean there is an absence of Chinese visitors (a key client segment to the casino operators), but it also means the absence of the world’s largest gambling market in Macau, thus, effectively giving the rest of the world a head start in capturing the pent-up gambling demand. We anticipate a sustained 2H22 recovery for GenT anchored by (i) RWG mainly from capacity ramp up; (ii) RWS from capacity ramp up and return of foreign visitors; and (iii) RWLV from return of foreign and convention visitors. In addition, the current buoyant commodity prices should continue to benefit the group’s plantation as well as O&G segments.

Forecast. We tweaked our forecasts for FY22/23/24 by -4.7%/-3.2%/-1.8% as we impute forecast changes from GenS and GenP.

Maintain BUY with a slightly higher TP of RM6.55 (from RM6.50) based on a 45% discount to our SOP-derived value of RM11.87 as we impute TP changes from GenS and GenP. 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 - 26 Aug 2022