While 1HFY21 core loss of RM111.0m missed expectations, strong UK and US numbers in 2QFY21, due to reopening and relaxing operating restriction, led us to believe that a swift recovery is in store for RWG and RWS once business and borders reopen. As such, GENTING is a good pick for recovery play. Maintain OUTPERFORM with a higher target price of RM6.47.

2QFY21 results still below expectations. Despite 2QFY21 core loss narrowing to a meagre RM1.8m, 1HFY21 core loss of RM111.0m, against house/street’s FY21 net profit estimates of RM507.2m/ RM345.9m, came below expectations owing to disappointing results as the prolonged lockdown dampened GENM’s (OP; TP: RM3.47) local earnings while the 1-month movement control marred GENS’ (Not Rated) profitability. Meanwhile, no half-yearly dividend was announced in 2QFY21, which is disappointing, due to the continued losses.

The pandemic continued to weigh on earnings in the East… A substantial reduction in losses with 2QFY21 core loss plunging 98% QoQ to RM1.8m from RM109.2m on the back of 30% hike in revenue. This was largely led by the UK land-based casino which reopened in mid-May. RWNYC saw higher revenue following the relaxation of operating restriction from early April. New casino RWLV, which was launched on 24 June, reported impressive c.RM61.1m revenue and c.RM15.5m adjusted EBITDA in the first six days of operations. GENP (OP; TP: RM8.40) also saw its earnings doubling on 11%/6% jump in CPO/PK prices with FFB output leaping 21%. However, RWG and RWS experienced lower earnings due to the abovementioned lockdown and restriction.

…but mitigated by the UK and North America units. YoY, 2QFY21 core net loss narrowed tremendously from RM516.6m in 2QFY20 as revenue jumped 165% as all casino operations were shut down last year when COVID-19 just turned into a pandemic. Besides, plantation earnings jumped 152% on higher CPO/PK prices and FFB output, YTD. A less significant reduction was seen in 1HFY21 core loss by 8% to RM111.0m from RM120.9m in 1HFY20 as it fully operated pre lockdown in 1QFY20 but suffered full lockdown in 1QFY20.

Near-term earnings remain dicey. A mix outlook in the upcoming 3QFY21 given the prolonged lockdown in Malaysia but this should be mitigated by the improving situation in the UK and US, especially RWLV. Overall, business volume is likely to recover from 2HFY21 due to the vaccination deployment where positive development has been witnessed in the western countries with higher vaccination rates. Post 2QFY21 results, we have included RWLV into our forecast and valuation. With the adjustment for GENM, GENS and GENP, we cut FY21E earnings by 31% but raised FY22E earnings by 8%. We also cut FY21E NDPS by half to 7.5 sen but keep FY22E NDPS at 15.0 sen.

Buy for recovery; keep OUTPERFORM. GENTING is a good pick for recovery play as its business should recover quickly once cross border restrictions are lifted especially for GENS. New casino RWLV could be a wild card judging from its initial data. With the inclusion of RWLV and post 2QFY21 results revision, our new target price is raised to RM6.47 from RM6.05 based on unchanged +1SD to 5-year mean at 41% discount to 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 - 30 Aug 2021