1QFY21 sunk into the red again with core loss of RM109.2m as MCO 2.0 lockdown hit GENM badly widening its losses. GENS also saw weaker earnings in the absence of one-off items while GENP also reported lower earnings as its downstream turned to losses. Upcoming 2QFY21 will likely remain weak but recovery should be swift once vaccination rates accelerate in 2HFY21. Keep OP for its deep valuation at a lower TP of RM5.58.

1QFY21 results below. 1QFY21 turned to the red again with core loss of RM109.2m as opposed to our FY21 net profit forecast of RM1.16b and consensus estimates of RM854.1m due to GENM’s (OP; TP: RM3.00) widened losses as it was badly hit by MCO 2.0 and a soft

GENS (Not Rated) earnings. No dividend was declared which was expected as it usually pays half-yearly dividend.

MCO 2.0 weighed down earnings… 1QFY21 turned to losses with core loss of RM109.2m from RM109.5m core profit in 4QFY20 on the back of 26% decline in revenue as the MCO 2.0 lockdown hit RWG badly as it turned in a LBITDA of RM88.4m from RM187.6m EBITDA previously. GENS also reported lower core earnings by 61% QoQ in the absence of certain one-off items that were posted in 4QFY20. Meanwhile, GENP (MP; TP: RM8.65) saw its core profit falling 28% on downstream losses and plantation profit plunged 26% on lower FFB output by 26% which overwhelmed higher CPO/PK prices.

… by the effect of pandemic. YoY, 1QFY21 core loss of RM109.2m plunged from core profit of RM395.7m in 1QFY20 with revenue falling 45% when the COVID-19 just started turning into a pandemic. The overall casino earnings plunged 65% to RM332.5m with RWG and UK casinos turning in LBITDA of RM88.4m and RM52.5m, respectively, while EBITDA of RWS plummeted 15%. Meanwhile, its power unit earnings contracted to RM31.6m from RM102.8m as the Banten Plant was under scheduled maintenance for a month.

Near-term earnings remain dicey. A mix outlook in the upcoming 2QFY21 given the resurgence of COVID-19 cases in Malaysia and Singapore but should be able to be mitigated by the improving situation in the UK and US. Overall, business volume is likely to recover strongly from 2HFY21 onwards due to the vaccination deployment where positive development has been witnessed in the western countries with higher vaccination rates. Post 1QFY21 results, we cut FY21/FY22 estimates by 40%/7% as the resurgence of COVID-19 cases is expected to delay recovery. However, no changes to dividend assumptions.

Maintain OUTPERFORM on good valuation. 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 in GENS and GENM enjoying pent-up business volume post business resumption last year. Post earnings revision, our new target price is reduced to RM5.58 from RM5.93 based on 5-year mean discount of 43.0% from 42.7% previously 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 - 27 May 2021