Genting Malaysia (GENM) reported a weak set of numbers, as 1QFY19 core-LATAMI of RM48m was significantly below both our and consensus forecasts. The losses were mainly due to lower revenue contribution from its casinos, as its casinos were required to stop operations to help stop the spread of COVID-19. Due to the prolonged closure, we have cut our earnings for 2020-22E by 23% - 98%. We also lower our SOTP-based TP to RM1.60 and reiterate our SELL call.

Impact From the Closure Is Just the Beginning

As most of GENM’s casinos only started to close by mid-Mar, recent earnings has not truly reflected the financial impact of the closure. We believe that it is challenging to forecast the earnings for GENM, as there is no clear indication on when all its casinos can reopen. Malaysian operations which is the main contributor has a cash burn rate of around RM4m/day including interest payment during the closure. Although management focussed on reducing overheads to help reduce the losses, we believe the impact is unlikely to be significant.

Theme Park Opening Delay and Social Distancing

Management said that the new outdoor theme park opening has been delayed till end-2021 from mid-2020, as the MCO in Malaysia has stalled the progress of its completion. Due to the delay in reopening, we are also revising down our visitation forecasts for 2020. Even after the restrictions are lifted, social distancing is likely to be implemented in the casinos. Likewise, social distancing will also limit the overall capacity of its casinos. We believe that it would take at least 2-3 years, before the visitation numbers would recover to 2019 levels.

Maintain SELL With a Lower TP of RM1.60

We cut our 2020-21E earnings by 41%-98% to factor in the closure of casinos due to COVID-19. We also lower our SOTP-based TP to RM1.60 (from RM1.66), and reiterate our SELL call. Key risks to our call include: 1) intensifying competition from other regional casinos; 2) higher-thanexpected cost structure; and 3) volatility in VIP segment.

Source: Affin Hwang Research - 22 May 2020