In a report yesterday (19 Nov), Macquarie Equities Research (MQ Research) says that recoveries in the Asia-Pacific local gaming consumption bodes well for Genting Malaysia (GENM), believing this will boost GENM’s results for the third quarter, expected to be announced on 26 November.

APAC Peers Rebound in 3Q

• Whether in Singapore, Vietnam, Phnom Penh, New Zealand or even Eastern Russia (Vladivostok), gross gaming revenue (GGR) from domestic customers exhibited V-shaped recoveries in 3Q. Even amid capacity restrictions across Asia-Pacific (APAC) markets, revenues from locals fully recovered to pre-COVID levels. MQ Research believes this bodes well for GENM’s 3Q results, where the Street is forecasting 3Q Malaysia revenues -44% year on year (YoY) despite domestic players contributing two-thirds of pre-COVID visitation. GENM’s decision to increase the dividend in Aug gives MQ Research even more conviction in a 3Q earnings before interest, taxes, depreciation and amortization (EBITDA) beat.
• While MQ Research believes Malaysia EBITDA ramped well throughout 3Q, COVID related restrictions placed in Oct will likely pause momentum. Despite new restrictions on domestic travel, Resorts World Genting (RWG) has remained open and MQ Research believes revenue trends moderated only slightly. 4Q EBITDA may be slightly below 3Q, but a 3Q beat should support GENM’s recovery thesis that EBITDA can quickly rebound when domestic restrictions ease.

US and UK Rebounding Nicely

• Resorts World NYC (11% of 2019 EBITDA). RWNYC has already demonstrated a V-shaped recovery. Since reopening on Sept 9, GGR per day is ~7% below 2019 levels. This comes despite operating at just ~50% capacity and with limited F&B. Similar to US Regional peers, MQ Research expects EBITDA to rebound quickly after reopening, as operating expenses (OpEx) cuts offset slightly lower revs. That said, 4Q could ease if casino restrictions increase as NY COVID cases climb.
• UK & Egypt (9% of 2019 EBITDA). Both UK iGaming and industry GGR at betting shops rebounded well in 3Q, as restrictions were mostly eased over the quarter. MQ Research expects GENM’s UK results to mimic US regional casinos, where OpEx cuts more than offset slightly lower GGR. Yet similar to NYC, increased 4Q restrictions may reverse some of 3Q’s positive trends.

Earnings and Target Price Revision

• Adjusted 2020E EBITDA to RM532m from RM202m and tweaked 2021-22E.

Price Catalyst

• 12-month price target: RM3.35 based on a EV/EBITDA methodology.
• Catalyst: Vaccine announcements, 3Q20 results on Nov 26

Action and Recommendation

• Maintain Outperform rating and RM3.35 target price (39% total shareholder return (TSR)). GENM shares remain 19% below pre-COVID levels (KLCI +3%); although have rerated 26% MTD (KLSI +10%) alongside vaccine progress. MQ Research sees GENM as among the top value/recovery plays, where investors will be compensated with a 7.5% dividend yield.

Source: Macquarie Research - 20 Nov 2020