FY20 results came below expectation, being distorted by MI. However, operationally, earnings came higher than expected given the better-than-expected GENM’s earnings, GENS showed steady recovery while higher CPO prices boosted GENP’s earnings. While 1HFY21 earnings still look dicey, a quick recovery is likely to happen in 2HFY21 as vaccine deployment has started. Maintain OP with a higher TP of RM5.93.

FY20 results are below our expectation with core profit of RM207.7m making up 40% of our estimate of RM518.1m but beat market expectation with consensus expecting a net loss of RM412.2m. The variant between our forecast and actual was due to us projecting a higher share of losses of RM1.40b from minority interest (MI) while the actual loss was RM1.05b. However, operationally, the results beat our numbers with adjusted EBITDA of RM2.90b coming 9% higher than our forecast. It declared a special dividend of 8.5 sen (ex-date: 12 Mar; payment date: 08 Apr), bringing FY20 NDPS to 15.0 sen, which is higher than our assumption of 12.0 sen, against 22.0 sen paid in FY19.

Casino earnings recovery remains sound… While earnings were distorted by MI, with 4QFY20 core profit falling 50% to RM109.5m, adjusted EBITDA was higher by 7% to RM1.18b largely driven by a 50% jump in GENS’ (Not Rated) earnings while RWG was impacted by CMCO with RWNYC turning around after business resumption. In addition, GENP (MP; TP: RM9.50) saw its plantation earnings soaring 44% on higher CPO/PK price and FFB output by 3%/22% and 11% respectively.

…with solid CPO prices too. YoY, earnings plummeted 78% from RM487.6m in 4QFY19 and 91% from RM2.38b in FY20 primarily due to the pandemic-hit casino earnings. However, this was partially mitigated by the strong CPO price-led earnings of GENP as the plantation’s adjusted EBITDA grew 14% and 13% in 4QFY20 and FY20 as CPO and PK prices were higher by 14%/41% and 23%/29%, respectively.

Near-term earnings remain dicey but casinos to lead growth in 2HF21. Upcoming 1QFY21 result is expected to be weaker given the on-going MCO 2.0 in Malaysia. However, business volume is likely to recover strongly from 2HFY21 onwards due to the vaccination deployment which has just started recently. As such, we trimmed FY21 earnings forecast by 3% mainly on adjustment for MCO 2.0 closure for GENM’s (OP; TP: RM3.35) RWG operation but we raised GENP’s earnings slightly by 1%. We also launched our new FY22 forecast with earnings to jump 70% from the low base.

Still a value buy; maintain OUTPERFORM. We believe GENTING is a good pick for recovery play as we believe its business should recover quickly once travelling restriction are lifted which was witnessed earlier by GENS and GENM enjoying pent-up business volume post business resumption. Post earnings revision and a valuation base rollover to FY22E, our new target price is RM5.93 from RM5.80 based on unchanged 5-year mean discount of 42.7% to its SoP valuation. Risk to our call is a prolonged COVID-19 pandemic continuing to restrict travelling and hence affecting its casino operations.

Source: Kenanga Research - 26 Feb 2021