• Losses for Genting Malaysia (GENM) were higher than consensus and our expectations, as core-LATAMI for 1H20 is already at RM841m
• Although GENM’s Malaysia and UK operations have resumed, overall capacity is still capped by social-distancing rules, while its US casinos remain closed
• We have increased our loss assumptions for 2020E by >5x to factor in the latest results, but maintain our TP at RM1.90. Reaffirm SELL.

Capacity Constraints Cap Recovery Potential

Given that most of its casino were closed during the 2Q20, there was no doubt that GENM would incur losses, given the lack of revenue. However, we believe that the losses were higher than consensus and our expectation. While management has guided that several cost-rationalisation programs have been initiated, we believe it will still be challenging to return to previous profitability levels given the capacity constraint on the casinos that have reopened. Although Genting Highland has reopened its doors, and managed to achieve daily visitation of around 45k visitors/day, this is still 42% below its average for 2019 at 78k/day. Despite achieving a 90% occupancy rate for its hotel rooms, the availability of rooms is only 45% of their previous capacity, to maintain overall cost.

US Casino Losses Likely to Continue

Although GENM’s Malaysian and UK casinos have resumed operations, its US casinos (both RWNY and RW Catskills) still remain closed. GENM has recorded an associate loss of RM78m from its 33%-owned RW Catskills, while its core US operations recorded a LBITDA of RM176m. While management has managed to reduce the overall cash-burn rate by 30% for its US operations by rationalising its cost structure, the overall losses are still significant. Moreover, the new COVID-19 cases in the state of New York are still hovering at 600 cases a day, and there is still huge uncertainty on timing of the reopening of casinos/gaming businesses. Nevertheless, we believe GENM’s US casinos will still remain afloat despite the closure.

Reaffirm SELL Rating With An Unchanged TP of RM1.90

We have increased our 2020E losses by 5x to factor in the latest performance, but raise our EPS for 2021-22E by 1-12% to factor in the new cost structure. We are maintaining our SOTP-based 12-month TP at RM1.90, and reaffirming our SELL rating. On a positive note, GENM announced a 6sen interim DPS. Key upside risks to our call include: 1) faster-than-expected reopening of its US casino operations; and 2) lowerthan-expected cost structure.

Source: Affin Hwang Research - 28 Aug 2020