• We believe the 1H20 performance for Genting Berhad (GENT) was below both market and our expectations, as core-LATAMI for 1H20 at RM606.7m was significantly higher than expected
• We had forecasted a full-year core-PATAMI of RM691m, while consensus was forecasting profit of RM514m for 2020E; miss was due to losses from Genting Malaysia and Genting Singapore
• Cutting our 2020E EPS to a loss to factor in losses from casino closures, and our TP to RM4.20. However, we are upgrading to BUY on valuation.

Resort World Las Vegas Still on Track

Management has continued to guide that the opening of Phase 1 of the Resort World Las Vegas (RWLV) continues to be on track for summer 2021, as construction work has been ongoing despite the lockdown previously, given sufficient social distancing was already observed on site. However, management could still delay the opening, if restrictions on gaming floor capacity are still capped due to social-distancing purposes. Although there was a reduction in DPS from its subsidiaries, mainly Genting Singapore, this is unlikely to impact progress of RWLC as the project had already secured the financing previously.

DPS for 1H20 Remains at 6.50sen

Despite losses from its subsidiaries, and a reduction in DPS by Genting Singapore (GENS), GENT decided to maintain an interim DPS at 6.5sen, similar to 1H19 levels. We believe the decision to maintain the DPS is a good indicator that GENT still has sufficient liquidity to sustain its operations. Although we are still expecting GENS to issue a final DPS, the overall amount could be lower than the previous year. In our view, the earnings recovery in GENS is likely to be more challenging, as its IR facilities are mainly catered towards foreign visitors, but Singapore’s borders remain shut to foreign tourists.

Upgrading to BUY; Lowering TP to RM4.20

Despite cutting our 2020E EPS to a loss (from profit of RM18.1sen) to factor in the closure of its core-subsidiaries casinos, the increase in EPS for 2021-22E by 21-23% is to input the benefits from cost-saving measures that have been implemented. Although our RNAV-based 12-month TP is lowered to RM4.20 (from RM4.45), we are upgrading the stock to BUY from Hold, as we believe that the current valuation is undemanding after the recent correction in the share price. Downside risks include: 1) further delays to the opening of its theme parks; and 2) slower-than-expected recovery in visitation numbers.

Source: Affin Hwang Research - 28 Aug 2020