Genting Malaysia (GENM) reported that it will be resuming gaming operations for Malaysia starting 19 June 2020, and its UK operations by 4 July 2020. However, its US casinos will remain temporarily closed. The re-openings do not come as a surprise to us, as we had assumed that all its gaming operations would resume by before end of 3Q20. Despite the resumption of activities, the social distancing requirement will put a cap on its current capacity. As such, we are keeping our SELL call and TP unchanged at RM1.90.

Social Distancing Limits Its Capacity

GENM announced that it will be resuming its gaming operation in Genting Highland; however, it is only open to members at the moment. Despite being able to resume operations, the social distancing requirement will limit the current capacity for table games and slot machines. While the re-opening is likely to welcome an influx of visitation at the beginning, we believe that the momentum is unlikely to be sustainable, as GENM will need to limit the number of patrons in the casino to ensure social distancing practices are in place. This “disruption” would have a greater impact on the mass market, which contributes more than half of its gaming revenue.

Visitation Will Need More Time to Recover

We believe that the visitation numbers will still remain under pressure despite more facilities re-opening soon, as Malaysia has yet to open its borders to foreign tourists. Based on our estimates, around 20% of the visitation in 2019 was driven by foreign tourists. Given that the chances of a COVID-19 second wave occurring is still real, the Malaysia government is unlikely to take the decision to reopen its borders lightly, in our view. With the opening of the new outdoor theme park slated for 3Q21, we believe that it would take at least 2-3 years before the visitation numbers recover to 2019 levels.

Maintain SELL With An Unchanged TP of RM1.90

We are keeping our forecast unchanged, as we had already assumed that gaming operations would be operational before end of 3Q20. Reiterate SELL with an unchanged TP of RM1.90. Key risks to our call include: 1) reduction in gaming taxes; 2) additional tax incentives; and 3) approval to expand its gaming capacity.

Source: Affin Hwang Research - 19 Jun 2020