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BUY, new MYR3.45 SOP-derived TP from MYR3.58, 16% upside, c.5% yield. Genting Malaysia posted 1Q22 adjusted EBITDA of MYR414m and a core net loss of MYR88m, as revenue slipped from a seasonally stronger 4Q21. Its various segments continued to recover in 1Q22, while Genting SkyWorlds is showing a promising start. We believe GENM will post sequential earnings improvements as tourism activity continues to pick up throughout the year. This report marks the transfer of coverage to Jim Lim.
Slight miss. 1Q22 adjusted EBITDA of MYR414m made up 14% and 17% of our and Street’s full-year estimates, while bottomline came in at a core net loss of MYR88m vs our FY22F core profit estimate of MYR1b and Street’s MYR787m. We deem this to be a slight miss, mainly weighed down by lower- than-expected 1Q22 revenue from Malaysia.
Showing promising recovery. Although GENM’s gaming revenue softened 10% QoQ against a seasonally stronger 4Q21, the gaming revenue of MYR1.3b currently stands at c.68% of pre-pandemic levels and appears on track to fully recover by next year, at the latest. Non-gaming revenue is at its highest since 1Q20, currently at 58% of the 2019 quarterly average. Adjusted EBITDA softened 44% QoQ mainly due to the seasonality factor and higher payroll costs from the ramping up of SkyWorlds.
Upbeat on prospects across various segments. Management stated that Genting SkyWorlds had c.3k daily visitors (maximum: 20k daily) in April/May. Currently, 15 out of 19 rides are open, with the rest to be opened progressively over 2022, as GENM continues to ramp up the theme park. Resorts World Genting’s hotel has opened 5,000 of its 10,500 available rooms, and is running at an 88% occupancy rate. We expect continuous improvement across GENM’s segments, with the return of foreign workers and as countries transition into the endemic phase. In the US, there should be sequential quarterly improvements from a soft 1Q22, which was weighed by cold weather and Omicron. GENM’s associate, Empire Resort’s (ER) mobile sports betting app has yet to contribute in 1Q22 after Mar 2022 launch, but is complementing the existing suite of offerings at Resorts World Catskills.
Forecast. Post results, we trim FY22-24F estimates by 10%-3%, as we take into account 1Q22’s slightly-weaker-than-expected footfall in Malaysia, and higher interest expenses in the future. The lower earnings bring our SOP- derived TP to MYR3.45, which includes an 8% ESG discount to intrinsic value. We maintain our BUY call as GENM continues to be a major beneficiary of the recovery in tourism activities. Further upside could come from the ongoing turnaround of ER, and potential wins in the Resorts World New York City (RWNYC) downstate commercial casino license.
Key risks: Slowdown in COVID-19 recovery, changes in luck factor, and regulatory risks.
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