• Genting Malaysia (GENM) reported a disappointing set of results, as 9M20 coreLATAMI of RM1,318.9m was below both our and consensus expectations 
• Although operating profits have improved since the reopening of casinos, GENM still recorded losses in 3Q20 due to a higher effective tax rate 
• We are reaffirming our SELL call, despite raising our TP to RM2.15, as earnings will likely remain volatile in 2020/21 given that visitation will continue to fluctuate based on the COVID-19 situation

Technology and lower headcounts drive margin in challenging time

Despite the revenue for Malaysian operations declining by 34% yoy in 3Q20, its adjusted EBITDA fell by a smaller 21% yoy, which came as a positive surprise to us, as the EBITDA margin at 36% was significantly higher than our expectation. The improvement is attributed to wider use of technology on the gaming floors and also the reduction in overall headcount to cater for the lower visitation levels. The wider use of technology also helped to reduce customer concerns over human interaction, which could be the new norm for the future as the risk of infection remains. We have also revised our forecast to factor in better margins for the next few years.

Stronger demand post the reopening, but visitation likely to remain volatile

Despite the capacity cap at 50% for most of its casinos, the overall decline in revenue post the reopening has fallen by less than that. We believe this has been supported by pent up demand due to the long lockdown periods. Casinos (like Genting Highlands and RWNY) which have strong local followings have also performed better than the casino in London which primarily focuses on serving foreign clients. However, we believe that the local visitation could ease after that initial excitement, and overall visitation will also remain volatile depending on the seriousness of the COVID-19 in the area. The overall visitations to the Highland has dropped to 15k/day recently since the start of CMCO, from 40k/day.

Reaffirm SELL rating, but with a higher TP of RM2.15

We are lifting our EPS for 2021/22E by 4.1%/7.3% to factor in the recent operating performance, which leads us to update our margins. Although we have raised our SOTPbased 12-month TP to RM2.15 from RM1.80, we are reaffirming our SELL call, as we believe that overall visitation for its casinos will remain volatile as concern about the spread of COVID19 is likely to persist in 2021. Key upside risks: 1) stronger-thanexpected recovery in gaming volume, and 2) higher margin from better cost control.

Source: Affin Hwang Research - 27 Nov 2020