1QFY21 results missed forecasts as losses widened, no thanks to MCO 2.0 lockdown while upcoming 2QFY21 should remain weak given the on-going MCO 3.0. However, its UK and US operations should have bottomed, being allowed to resume following high vaccination rates which have helped to reduce infections and fatality rates. As such, we believe GENM also should benefit once Malaysia progresses to higher vaccination rates by 2HFY21. Thus, we keep OP on the stock with revised lower TP of RM3.00.

1QFY21 result missed forecast. GENM reported 1QFY21 result which came below expectations with core loss widening to RM426.3m against our FY21 net profit forecast of RM390.9m and consensus’ FY21 net profit estimates of RM220.9m. This was largely due to the MCO 2.0 closures. As expected, no dividend was declared during the quarter as it usually pays half-yearly dividend.

Hit by lockdown again. 1QFY21 core loss ballooned to RM426.3m from RM152.6m in 4QFY20 as revenue tumbled 40% on MCO 2.0 lockdown which led to 25 days of business closures. The lockdown turned RWG to LBITDA of RM83.6m from EBITDA of RM130.8m while daily visitations during CMCO were below 10,000 from 60,000 pre- pandemic levels. Meanwhile, losses for its UK unit hit RM51.7m from RM40.9m as all land-based casinos were still closed while earnings for North America unit remained flattish following the reopening of RWNYC operations in early Sep 2020. Associate, Empire also posted flattish share of loss at RM45.4m.

US operations showed stable earnings. YoY, 1QFY21 core loss widened 8x from RM47.8m in 1QFY20 hit by 25 days of closures in MCO 2.0 coupled with CMCO, while 1QFY20 only faced 14 days of closure during MCO 1.0 last year. As such, 1QFY20 still saw EBITDA of RM331.2m at RWG. Meanwhile, both UK and North America operations also registered EBITDA last year before COVID-19 worsened into a pandemic. However, in 1QFY20, Empire posted higher share of loss of RM100.1m, as opposed to a smaller loss of RM45.4m in the current quarter, owing to cost associated with refinancing back then.

2QFY21 will be another weak quarter. With the on-going MCO 3.0 lockdown, GENM is expected to register another weak quarter in 2QFY21 but this should be mitigated by the resumption of business opening from 17 May in the UK while the US operations are allowed to operate with full capacity from next month. Meanwhile, cost rationalisation such as 30% payroll cut and on other opex items should help to drive earnings growth. Management had indicated that the current cash burn rate is RM4m/day with interest expenses for RWG as opposed to RM4m/day without interest expenses during MCO 1.0. Meanwhile, the outdoor theme park is on track to be opened in 3QFY21 depending on the COVID-19 situation.

Still OP for recovery play. Post 1QFY21 results, we expect GENM to post net loss of RM175.9m from net profit of RM390.9m previously as MCO 3.0 has delayed an expected earnings recovery. We also cut FY22 earnings estimate by 15% but NDPS for both years remained unchanged at 12.0 sen each. Going forth, while we reckon near-term earnings will remain dicey with the on-going MCO 3.0, GENM should recover swiftly as the vaccination deployment is expected to accelerate in 2HFY21. Thus, we keep our OP rating on the stock but with a lower SoP-driven TP of RM3.00 from RM3.35 previously. Risk to our call is slower-than-expected recovery in business volume from business disruptions.

Source: Kenanga Research - 27 May 2021