With losses ballooning to RM355.2m in 3QFY21 which missed our forecasts, we are now expecting FY21 to be loss making against our previous net profit forecast of RM351.4m. Having said that, we believe that a swift recovery is in store for RWG and RWS once the borders reopen. Thus, we still believe that GENTING is a good pick as a recovery play. Maintain OUTPERFORM with a revised target price of RM6.38.

3QFY21 results came below expectations. With 3QFY21 core loss ballooning to RM355.2m from RM1.8m in 2QFY21, 9MFY21 core loss of RM466.1m missed our net profit forecast of RM351.2m and RM59.1m of consensus net loss estimate. This was largely due to weaker-than-expected GENT’s (OP; TP: RM3.41) RWG and GENS’ (Not Rated) RWS earnings. Meanwhile, no dividend was declared during the period which could be due to the continued losses.

Weaker RWG and RWS. As mentioned above, the widening 3QFY21 losses were due to continued losses from its local Malaysia unit while RWS also saw its core profit falling sharply by 61% to SGD26.0m on slow recovery while RWG’s losses widened to 75% to RM164.8m but Genting UK and Genting North America reported impressive earnings since they reopened in Apr/May 2021. Meanwhile, GENP (OP; TP: RM8.40) reported lower earnings by 17% sequentially on lower PK prices, lower FFB output and on lower earnings from the property division’s Premium Outlets.

UK and North America units to show positive data. YoY, 3QFY21 turned to core loss of RM355.2m from core profit of RM219.1m. However, strong recovery was posted in both Genting UK and Genting North America as they reopened. On the other hand, RWG turned to losses on MCO 3.0 lockdown while RWS also posted declining earnings. GENP benefited from higher CPO prices by 40% and 56% for PK prices that pushed its earnings higher.

A better 4QFY21 and beyond. With the economy reopening at end- 3QFY21, Malaysia and Singapore are looking to reopen their borders. Besides, this is also aligned with the busy year-end holiday season. GENP is also set to benefit from the still high CPO prices. In all, we are now expecting GENTING to post net loss of RM23.0m, as opposed to net profit forecast of RM351.2m previously, for adjustment in GENM, GENS and GENP. We also cut GENTING’s FY22E earnings by 20%. Although no dividend has been declared so far, we still keep our forecast NDPS of 7.5 sen for FY21 and 15.0 sen for FY22.

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 initial data. Post 3QFY21 results revision, our new target price is lowered to RM6.38 from RM6.47 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 - 26 Nov 2021