FY20 core loss of RM1.43b came lower than our forecast given that RWG managed to stay EBITDA positive despite the MCO which restricted inter-state travel. We reckon near- term earnings remain dicey especially due to the on-going MCO 2.0. However, business volume should recover strongly in 2HFY21 as vaccination should be in a more mature stage by then. Thus, we expect strong buying momentum to continue riding on recovery theme. Upgrade the stock to OP with a higher TP of RM3.35

FY20 losses lower than expected. 4QFY20 core loss narrowed further by another 65% QoQ to RM152.6m despite CMCO during the quarter. This brought FY20 core loss to RM1.43b which is lower than our core loss forecast of RM1.80b due to stronger-than-expected Malaysia operation but the losses were slightly higher than consensus estimates by 6%. It declared a special dividend of 8.5 sen (ex-date: 12 Mar; payment date: 06 Apr), totalling FY20 NDPS to 14.5 sen, which is higher than our forecast of 11.0 sen, vs. 20.0 sen paid in FY19.

RWG still EBITDA positive. Despite revenue contracting by 27% due to CMCO, 4QFY20 core loss narrowed 65% QoQ from RM434.6m in 3QFY20 largely due to taxation credit of RM26.9m as compared to a charge of RM365.0m. We were surprised with an EBITDA of RM130.8m posted by its Malaysia operation, despite of the CMCO which restricted interstate travel during the quarter. We had expected it to fall more than the reported 69% QoQ The North America unit turned in an EBITDA of RM70.9m from LBITDA of RM71.7m following the reopening of RWNYC operations in early Sep 2020. Meanwhile, associate Empire also posted narrower share of loss of RM44.4m from RM62.0m.

COVID-19 weighed on earning badly, with 4QFY20 and FY20 results turned loss-makings from core profits of RM216.2m and RM1.31b in the same period last year. All geographical casinos posted declined volume that led to the dismal report card. Meanwhile, there was a total share of loss of RM285.2m FY20 against RM31.6m last year as GENM only started recognising Empire’s equity accounting in 4QFY19.

To recovery in 2HFY21. With the on-going MCO 2.0 and land-based UK casinos remain temporarily shut, the upcoming 1QFY21 is expected to be weak and this may carry on with 2QFY21 before a recovery in 2HFY21 as vaccination deployment should be at the advanced stage by then which should boost business. Besides, the long-awaited outdoor theme park will be ready to open by mid-2021. We have learnt that the burn rate for RWG was RM4m per day during the closure under MCO 2.0 recently. In all, we cut FY21 estimates by 3% to reflect the MCO 2.0 closure but keep other assumptions unchanged. We also introduced new FY22 estimates where we expect a strong rebound with 161% growth from the low base in FY21.

Upgrade to OP for recovery play. While we reckon near-term earnings will remain dicey especially in 1HFY21, as the vaccination deployment should help the economy to recover; thus, benefitting tourism-related stocks like GENM while a strong recovery in 2HFY21 is highly possible. As such, we decided to value the stock based on FY22E earnings and removing our 10% discount to SoP valuation. We arrived at a new target price of RM3.35 from RM2.45 and hence upgrade the stock to OP from MP previously. Risk to our upgraded call is slower-than-expected recovery in business volume from business disruptions.

Source: Kenanga Research - 26 Feb 2021