Genting Malaysia (GENM) results are well within our expectations but fell short of consensus, as 2019 core-PATAMI of RM1,305m (- 12% yoy) accounted for 99% and 93% of respective forecasts. We believe that the sharp decline in profit in 4Q19 (-38% qoq), was due to the normalisation of the hold percentage for the Malaysia operation. We have tweaked our EPS forecast for 2020-21E by 2.2- 4.3% to factor in the impact of Covid-19. We have revised down our TP to RM3.10, but maintain our HOLD call.

VIP Gaming Volume Continued to Normalise

VIP gaming volume continued to recover in 4Q19, as overall volume for 2019 is only down by 12% yoy, from the twenties at the start of 2019. We believe that the recovery can be attributed to both the upgrading of some of its cash players, and its VIP players returning as they get use to the new rebates. Despite lower volume for 2019, revenue from the VIP segment managed to grow by 10% yoy, due to the favourable hold percentage. As the VIP segment relies heavily on the regional players, the worsening of Covid-19 is likely to have a negative impact on volume. VIP GGR mix was 47% in 2019 (2018: 43%).

More Spending But Not on Gaming Tables

Overall visitation to Genting Highland grew by 10% yoy in 2019, however, non-VIP gaming revenue has declined by 7% yoy. We believe that the Malaysian government’s new initiatives might be able to boost local tourist demand, which could benefit Genting Highlands, but it might not be sufficient to cover the loss of foreign guests. Based on the nationality of the hotel room guests in 2019, only 65% of the rooms are occupied by locals. As such, we have lowered our visitation growth forecast for the year to 5% from 1% for 2020. Management is optimistic that a pent-up recovery could happen after Covid-19.

Maintain HOLD With a Lower TP of RM3.10

We have tweaked our 2020/2021E earnings by 2.2-4.3% to factor in the potential impact from Covid-19. We have also lowered our SOTP-based 12-month TP to RM3.10 (from RM3.40) on the back of our earnings cuts, but maintain our BUY call. Key downside risks to our call include: 1) intensifying competition from other regional casinos; 2) volatility in VIP segment. Upside risk: lower-than-expected cost structure.

Source: Affin Hwang Research - 28 Feb 2020