MCO 2.0 in six states locally and the 2nd lockdown in the UK, which led to its 4th casino to be permanently shuttered there, will continue to pressure GENM’s near-term earnings. However, at least there is a positive sign from NY and Bahamas on encouraging data post reopening. Nonetheless, it remains an MP at a lower TP of RM2.45. Parent GENTING is a better proxy for recovery play.

Another UK casino to close permanently. It was reported last week that GENM’s UK unit is proposing to permanently close its Genting Casino in Southport due to COVID-19. It has already closed casinos in Margate, Torquay and Bristol and has reduced workforce in the rest of its UK casinos. The UK started its 2nd lockdown on 5 Nov 2020 to combat the pandemic which is not abating but worsening recently with daily new cases above 40,000 since 28 Dec 2020. As such, upcoming 4QFY20 and 1QFY21 results are expected to see wider losses from LBITDA of RM50.5m in 3QFY20. During the peak of pandemic, management guided that cash burn-rate for the UK operations, which have 43 casinos across the country, was GBP7m per month.

MCO 2.0 will take a toll on RWG. Back home, CMCO was imposed in Klang valley since early Oct 2020 followed by reintroduction of MCO in six states from last Wednesday. This will further impact its Malaysia operation. Therefore, the seasonally strong year-end and CNY bump are not expected in 4QFY20 and 1QFY21 and it could return to the red again but the severity is less than 2QFY20 as the latter had a full lockdown. While there are no updates from the outdoor theme park, known as Genting SkyWorlds, targeted timeline to open in mid-2021 could be delayed given the current situation.

Better pictures in the North American operation. Since the reopening in Sep 2020, Resorts World Casino New York City and Resorts World Catskills have reported encouraging data. According to NYS Gaming Commission, net win/total GGR in Oct 2020 for these two casinos was at 78%/84% of Oct 2019 level but fell to 70%/62% in Nov 2020 and 67%/61% in Dec 2020 after restricted opening hours were imposed in mid-Nov 2020. Meanwhile, Resorts World Bimini was reopened on 26 Dec 2020. To recap, the resort was shuttered again on 25 Jul 2020 after reopening on 01 Jul 2020 as COVID-19 cases began to spike again. For now, at least this North America operations are showing positive sign which could help to reduce losses. It posted LBITDA of RM176.4m and RM71.7m in 2QFY20 and 3QFY20, respectively.

Cut FY20-FY21 estimates further. Given the abovementioned developments, we forecast a wider net loss of RM1.80b in FY20 from RM1.36b as we increased losses from Malaysia and the UK casinos but reduced losses for North America operation and Empire Resorts. We also further cut FY21 earnings estimates by 22% on lower Malaysian earnings, higher North America earnings but keep the UK earnings unchanged. Nonetheless, we maintain our FY20-FY21 NDPS of 11.0 sen-12.0 sen assumptions unchanged.

MP reiterated; looking forward to border reopening. While near- term earnings prospects remain dicey, we expect a strong rebound once lockdowns are lifted with vaccines rollout envisaged to lead to eventual borders reopening. This was witnessed in the strong 3QFY20 casino numbers on pent-up demand as business resumed. Having said that, GENM is fairly valued at a lower TP of RM2.45 from RM2.60, which is at 10% discount to its SoP valuation; thus a MP. Parent GENTING (OP; TP: RM5.70) is a better proxy to earnings recovery on the back of GENS (Not Rated). An upside risk to our call is stronger- than-expected business volume during this pandemic period.

Source: Kenanga Research - 18 Jan 2021