3QFY21 results disappointed with higher-than-expected losses in RWG. However, it is worth highlighting that its UK and USA units’ numbers are fairly encouraging, helping to mitigate the RWG losses. We believe GENM should benefit from imminent borders reopening. Keep OUTPERFORM on the stock albeit with a revised lower target price of RM3.41.

9MFY21 below expectations. While 3QFY21 core loss narrowed 27% QoQ to RM252.7m, 9MFY21 core loss of RM1.03b came below our expectation (FY21 net loss forecast of RM1.04b) given the higher-than expected 3QFY21 losses but matched consensus (FY21 net loss estimate of RM1.20b). No dividend was declared during the quarter given the losses incurred.

Lockdown hit Malaysia operations. Despite losses for the local operations widening by 75% to LBITDA of RM164.8m, 3QFY21 group core loss managed to be reduced 27% QoQ from RM347.3m largely due to strong numbers from its UK unit with a full quarter impact as its adjusted EBITDA jumped to RM102.1m from RM14.3m as land-based casinos in UK reopened from mid-April while the North America unit also reported a 10% growth in EBITDA. RWG only operated for one day in 3QFY21 with revenue of RM17.7m with losses expanded 75%. Meanwhile, share of associate income from Empire Resort reported a 39% decline in losses to RM30.9m from RM50.6m previously.

But non-Malaysian numbers were impressive. YoY, 3QFY21 core loss narrowed substantially by 42% while revenue declined 42%. With the similar QoQ comparison, its Malaysia operation was hit by MCO 3.0 lockdown whereas Genting UK and North America units turned profitable after reopening. Likewise, 9MFY21 core loss reduced 20% to RM1.03b from RM1.28b. Meanwhile, Empire also saw its share of associate loss halved to RM126.9m owing to a refinancing exercise last year.

Turning around from 4QFY21 onwards. With RWG already reopened from 30 Sep, we expect losses to narrow QoQ further but this should be further helped by the improved operating environment in its UK and US units. Having said that, cost rationalisation such as 30% payroll cut and other opex items should also help to drive earnings growth. Post 3QFY21 results, we increased FY21 net loss forecast to RM1.15b from RM1.04b previously but apply a mere 0.4% cut in FY22 net profit estimate. Despite 9MFY21 losses, we still keep FY21 NDPS assumption of 6.0 sen.

Border reopening is near, OP maintained. With the government’s target to open borders, we believe RWG should benefit. Going forth, while we reckon near-term earnings will remain dicey, GENM should recover swiftly upon borders reopening. Thus, the stock remains an OUTPERFORM albeit with a slightly lower SoP-driven TP of RM3.41 from RM3.47 previously. Risk to our call is a slower-than-expected recovery in business volume from business disruptions.

Source: Kenanga Research - 26 Nov 2021