• We maintain our SELL call on Genting Malaysia (GENM), cut the EPS for 21/22E by -11.8%/-1.7% and reduce our TP to RM1.80, as we are expecting a longer recovery than previously expected
• We believe that the current visitation is likely to drop off after the initial excitement post opening, and the recent spike in COVID-19 cases is likely to deter frequent visitation too
• GENM’s international operations will continue to be loss-making despite a reopening, as they are forced to operate on more stringent requirements

Spike in COVID-19 Cases Is Bad for Business

Although management guided that overall visitation has recovered to 42% of its 2019 level since the resumption of its Genting Highland operations, we believe that the numbers are not sustainable, as visitation is likely to slow after the initial excitement post the reopening. Apart from that, only members are allowed to enter the casino and the gaming capacity is capped at less than 50% due to social-distancing requirements. The recent spike in COVID-19 cases could also deter more frequent visitation due to the fear of contracting the virus. We are only expecting visitation to recover 6-12 months after a vaccine is publicly available.

International Tourism Will Take Time to Recover

Overall visitation is unlikely to achieve pre COVID-19 levels as the Malaysian borders remain shut for general tourism - international visitors had contributed to 25% of overall visitation in previous years. Malaysia has also put their plans to be part of travel bubbles on hold after a spike in cases around the world. Given the lack of clarity on the effectiveness and safety of the potential vaccines, the acceptance rate of a vaccine might not be sufficient to achieve community protection. As such, a COVID-19 scare could still deter tourists from travelling overseas even after shutdowns have been lifted. We are expecting a full recovery of tourists by 2024.

International Operations Are Operating in More Stringent Environment

Although most of GENM’s UK and US operations have resumed operation, we are not expecting them to turn profitable soon, as the recent surges in COVID-19 cases have forced governments to implement more stringent restrictions. Although its New York casinos have resumed operation, they were only allowed to operate at 25% capacity (Las Vegas casinos allowed to operate at 50% of capacity). GENM’s UK casinos also need to adhere to a 10pm curfew.

Source: Affin Hwang Research - 9 Oct 2020