Resorts World Genting (RWG) will reopen in phases tomorrow (Friday, 19 Jun) from 10am onwards but entry into SkyCasino at SkyAvenue and Genting Club will be limited to Genting Rewards members. While Macquarie Equities Research (MQ Research) expects the casino will be reopen to public on 1 September, MQ Research maintains an Outperform rating on Genting Malaysia (GENM), expecting the company’s revenue to rebound with RWG to be a true monopoly for Malaysians until international travel restrictions are lifted. GENM’s share price rose another 5.4% to close at RM2.74 yesterday (17 Jun)

RWG Reopening to Rewards Members

• On June 17 after market close, GENM announced the reopening of RWG will take place at 10am on June 19. The initial phase of casino operations will be limited to Genting Rewards members. At a later/undisclosed date, GENM will allow the public to enter the casino. MQ Research believes many investors were expecting a September 1 reopening, which puts the latest announcement ahead of expectations. A full opening to the public on September 1 seems more likely, which would also include other non-gaming attractions.

• Genting Rewards members include VIP and Premium Mass players, which contributed ~47% of RWG’s 2019 gross gaming revenue (GGR). MQ Research expects some lower-tier (Base Mass) Genting Rewards members to be included in the initial recovery as well. MQ Research also does not believe that social distancing measures will have much impact on VIP/Premium Mass operations and should offer limited offset to the initial recovery.

• MQ Research believes that ~60–70% of VIP/Premium Mass players are local Malaysians. RWG is inaccessible to international players given travel restrictions, but MQ Research also sees GENM taking back market share from ASEAN peers (Singapore, Naga). Marina Bay Sands has long been a popular destination for Malaysian VIPs, and in more recent years Naga has been a big market-share taker also. Given travel restrictions, MQ Research sees these dollars returning to RWG.

Earnings before interest, tax, depreciation and amortisation (EBITDA) margins to surprise

• Even without the public returning to RWG, MQ Research expects high flow-through on the initial revenue rebound. Not only will lower visitation allow for a leaner cost structure, but MQ Research also expects Genting to remain prudent on the promotion/marketing side. Until international travel restrictions are lifted, RWG will be a true monopoly for Malaysians and can more tightly manage promotions without losing market share.

• Global casinos have recovered remarkably quickly after reopening, where US and ANZ saw pent-up demand offset headwinds related to social distancing. Some US casinos even saw flat/higher GGR YoY, with EBITDA growing significantly alongside leaner cost structures.

Action and Recommendation

• Maintain Outperform rating and RM3.20 target price. MQ Research sees GENM shares returning to pre-COVID levels as investors become more comfortable with a full recovery. Given leading exposure to domestic travel, MQ Research believes GENM’s recovery will be the fastest among Asia gaming peers.

12-month Target Price Methodology

• GENM MK: RM3.20 based on a discounted cash flow (DCF) methodology

Source: Macquarie Research - 18 Jun 2020