1QFY22 results missed forecast again with core loss widening to RM193.9m, due to lower earnings from GENM, GENP and Power segment’s earnings. However, GENTING is a key beneficiary of economy recovery play. In addition, GENP will continue to excel given elevated CPO prices. Maintain OUTPERFORM with a revised lower target price of RM5.86 from RM6.12.

1QFY22 below expectations. Losses in 1QFY22 widened to RM193.9m, from core loss of RM116.3m in the preceding quarter, against house/street’s FY22 net profit forecast of RM1.51b/RM1.21b. This was due to: (i) sub-par GENM (OP; TP: RM3.71)’s earnings on higher interest cost and lower earnings from all its casinos, (ii) disappointing GENP (MP; TP: RM9.50)’s results on lower productions, and (iii) lower Power segment’s earnings on outages. Meanwhile, there was no dividend declared during the quarter as expected.

All casinos weakened except GENS. 1QFY22 core loss ballooned to RM193.9m from RM116.3m in 4QFY21 given the weak GENM’s casino operations. However, GENS (Not Rated)’ casino earnings jumped 74% to RM403.2m as revenue grew 21% over the quarter as the previous quarter was hit by sharp decline in revenue on restricted operating capacity and spike in COVID-19 cases. Meanwhile, plantation earnings contracted 21% on weaker FFB productions. As mentioned above, Power earnings were hit by a 42-day outage at the Banten Plant.

Higher depreciation and interest expense impacted YoY results. While all business segments reported higher earnings, 1QFY22 core loss widened to RM193.9m from RM109.2m despite an 87% hike in revenue. This was due to higher depreciation (+42%) and interest expense (+92%). Compared to last year, casino earnings have improved as 1QFY21 results were hit by lockdowns while plantation earnings benefited from the rally in CPO prices.

A better FY22. With more mutual VLTs opening up border between countries, both GENM and GENS should see higher visitor arrivals to boost earnings. Meanwhile, GENP is also set to benefit from the still high CPO prices. In view of weak 1QFY22, we cut FY22 and FY23 earnings estimate by 16% and 5%, respectively, on a minor numbers fine-tune for its casino operations, coupled with revised forecast for GENP, and a lower Power earnings assumption. However, we maintain our NDPS forecast of 15.0 sen for both FY22 and FY23.

A recovery play; OUTPERFORM maintained. GENTING is still a good pick for economy recovery play as its businesses should recover quickly from the lifting of cross-border restrictions. New casino RWLV could be a wild card judging from initial data. Post 1QFY22 results revision, our new target price is lowered to RM5.86 from RM6.12 based on unchanged +1SD to 5-year mean at 41% discount to SoP valuation. Risk to our call is a prolonged COVID-19 pandemic continuing to restrict travelling and hence affecting its casino operations.

Source: Kenanga Research - 27 May 2022