GENM’s 1HFY22 results disappointed as the recovery momentum fell short of expectations. Nonetheless, it did return to the black in 2QFY22. Nonetheless, with the reopening of the economy and international borders, its prospects will continue to improve. We cut our FY22F and FY23F net profit by 43% and 18%, respectively, lower our TP by 2% to RM3.64 (from RM3.71) but maintain our OUTPERFORM call.

1HFY22 below expectations with core loss narrowing to RM30.5m, after a turnaround of core profit to RM73.3m in 2QFY22, against house/street’s full-year net profit forecast of RM744.7m/RM646.6m. The main discrepancy against our forecasts was due to: (i) earnings recovery from the Genting Highlands resorts was not strong enough as compared to our post border reopening expectation, (ii) higher than-expected interest expenses (1HFY22A of RM304.1m accounted for 63% of our forecasts of RM482.3m). Despite making losses, it declared 1st interim NDPS of 6.0 sen was a pleasant surprise.

2QFY22 turned profitable nonetheless as expected. With the border reopening from 1 April, 2QFY22 turned to the black at RM73.3m, narrowing 1HFY22 core loss to RM30.5m against RM773.6m core loss reported in 1HFY21. Visitor arrivals at the hilltop resorts leapt 32% QoQ to 5.4m in 2QFY22, boosting 1HFY22 visitor arrivals to 9.5m. The opening of Genting SkyWorlds theme park in Feb also contributed to the visitor arrivals thus higher non-gaming revenues. While the UK and Egypt operations’ results were fairly flattish sequentially, its North America operation’s earnings grew 58% QoQ to RM122.9m largely driven by non-gaming earnings but Resort World Bimini impaired a total of RM66.8m on assets in 2QFY22.

Resorts World Genting will benefit from the reopening of the economy as well as international borders that should usher the return of foreign tourists. We cut our FY22F and FY23F net profit forecasts by 43% and 18%, respectively, lower our TP by 2% to RM3.64 from RM3.71 (after reflecting the earnings downgrade as well as rolling forward our valuation base year to FY23F from FY22F). There is no adjustment to our TP based on ESG for which it is given a 3-star rating as appraised by us (see Page 5). Maintain OUTPERFORM.

Risks to our recommendation: (i) non-renewal of licenses, (ii) unfavourable prize payout ratios, (iii) weak consumer spending amidst high inflation, and, (iv) products perceived to be socially undesirable.

Source: Kenanga Research - 26 Aug 2022