While losses in 2QFY21 is expected, the prolonged lockdown impact will continue to worsen in 3QFY21. Having said that, accelerating vaccination program towards full vaccination by Oct should likely relax business operating and movement restrictions. As such, we believe GENM should benefit from this. We maintain OUTPERFORM on the stock with a revised lower target price of RM3.47.

1HFY21 below expectations. Despite 2Q21 core loss narrowing 19% QoQ to RM347.3m, 1HFY21 core loss of RM773.6m, which against house/street’s FY21 net loss estimates of RM545.5m/RM378.1m, came below expectations given the prolonged lockdown. Meanwhile, no half- yearly dividend was declared, which is disappointing, due to continued losses.

Lower losses helped by non-Malaysia casinos… 2QFY21 core loss reduced 19% sequentially to RM347.3m from RM426.3m as EBITDAturned profitable at RM45.6m from LBITDA of RM110m in 1QFY21. The improved results were attributable to Genting UK turning profitable at RM14.3m from RM51.7m losses as the land-based casinos reopened from mid-April while North America unit’s earnings improved further by 59% to RM109.3m on higher revenue from RWNYC following the relaxation of operating restriction from early April. Meanwhile, the local RWG continued to record losses as operation was closed from June under FMCO. Meanwhile, share of associate income from Empire Resort reported slightly higher loss of RM50.6m from RM45.4m.

…due to reopening of overseas operations. YoY, 2QFY21 net loss declined by 56% from RM793.2m as revenue jumped 612% over the year. This was due to narrowed losses from RWG on higher operating day of 54 from 12 in the MCO 1.0 quarter last year while the UK and North America operations’ EBITDA turned positive after reopening. YTD, 1HFY21 core loss reduced slightly by 8% to RM773.6m due to the same reasons as mentioned in 2QFY21 YoY comparison. Meanwhile, share of associate income, Empire posted a lower share of loss of RM96.0m from RM178.1m, owing to cost associated with refinancing last year.

3QFY21 results likely to worsen. With the on-going business closure, RWG is likely to report wider losses again in 3QFY21 but this should be mitigated by the improved operating environment in UK and US units. Having said that, cost rationalisation such as 30% payroll cut and other opex items should help to drive earnings growth. Management had indicated that the current cash burn rate is RM2.5m/day without interest expenses for RWG as opposed to RM4m/day without interest expenses during MCO 1.0. Due to prolonged business closure, we increased FY21 net loss forecast to RM1.04b from RM545.5m but with a mere 0.1% lowering in FY22 net profit estimates. We also cut FY21 NDPS assumption by 50% to 6.0 sen given the losses this year but keep FY22E NDPS of 12.0 sen unchanged.

Reopening is near, OP maintained. With the government’s target to reach full vaccination for adult population by Oct, we believe the business resumption for RWG is imminent. Going forth, while we reckon near-term earnings will remain dicey, GENM should recover swiftly on reopening. Thus, the stock remains an OUTPERFORM with a lower SoP-driven TP of RM3.47 from RM3.50 previously. Risk to our  call is slower-than-expected recovery in business volume from business disruptions.

Source: Kenanga Research - 27 Aug 2021