• We are cutting our earnings forecast for 2021E by 33%, as the government has extended the interstate travel ban for most of Klang Valley (KV) till end of April, which we previously expected to end in March
• Although interstate travel for states under the RMCO status is allowed, it must be done through registered tour agencies, which we believe will limit the recovery and therefore is likely to be slower relative to post MCO 1.0
• While we were expecting a hike in visitation post the opening of the new outdoor theme park in mid-2021, there is downside risk to our forecast if the interstate travel ban is prolonged in the KV region

Lowering Our Forecast to Factor in the Extended Interstate Travel Ban

We are lowering our earnings forecast for 2021E by 33%, as we cut our annual visitation forecast by 10%, to factor in the prolonged interstate travel ban in the Klang Valley (KV) region which we previously expected to end in March. Although the interstate travel ban has been lifted in several states which are under the RMCO status, individuals who wish to travel are required to go through registered tour agencies and they are not allowed to travel by private vehicle. We believe this requirement would reduce the appeal to travel, which will have a negative impact on the recovery on GENM post MCO 2.0 and would likely track behind post MCO 1.0.

A 4th Wave Is No Doubt Bad for Earnings

While we have already factored in the interstate ban to continue till end of May, we believe that there is still downside risk to our forecast for 2021, as the MOH had recently warned that the country might be facing a 4th wave of Covid-19. If the current interstate travel ban is prolonged beyond May, there could also be delays to the opening of its new outdoor theme park which was slated to open in mid-2021. The new outdoor theme park is the key growth catalyst for GENM. We estimate that GENM’s Malaysia operation is likely to incur LBITDA of around RM80m-RM100m for every month when the interstate travel ban is effective.

Maintained HOLD, as Earnings Risk Caps Upside Gains

We cut our EPS for 2021E by 33% to factor in a lower visitation forecast due to the impact of the extended interstate travel ban. Despite the risk of a prolonged interstate travel ban, we are maintaining our HOLD call, as investors are likely to look past the struggle in 2021 and focus on the earnings recovery in 2022 instead. Key downside risk: 1) Prolonged ban on interstate travel and 2) higher-than-expected losses from Resort World Catskill

Source: Affin Hwang Research - 20 Apr 2021