We cut GENTING’s FY22/FY23 earnings estimates by 7%/5% to reflect weaker-than-expected GENS’ 1HFY22 earnings which core profit of SGD108.7m missed forecast as lower hold percentage dented 2QFY22 results. Despite international borders reopening, international tourism visitorship remained weak in 1HFY22 but should recover further from here. For now, we keep our OP call on GENTING unchanged, pending its 2QFY22 results later this month-end.

GENS’ results underperformed, with 1HFY22 core profit falling 3% YoY to SGD108.7m, which only made up 32% of consensus’ FY22 forecast, owing to weaker luck factor. At the adjusted EBITDA level, 1HFY22 earnings of RM268.7m accounted for 40%/37% of house/street’s FY22 forecasts.

Lower hold percentage hit 1HFY22 earnings, which fell 3% YoY in both core profit and adjusted EBITDA. A hold-normalised adjusted EBITDA of SGD289.0m was 13% higher than that of SGD256.8m in 1HFY21. Meanwhile, despite the reopening of international borders from 1 April, 2QFY22 revenue only grew 11% or SGD34.1m QoQ to SGD348.6m from SGD314.5m due to abovementioned luck factor, while business volume also slowed especially in the months of April and May. On the other hand, limited flight capacity and extraordinarily high airfares also partly contributed to the lower international tourism visitorship.

Cut GENTING’s FY22/FY23 earnings forecasts, by 7%/5% to account for weaker luck factor in 1HFY22 as well as lower business volume at GENS.

A better 2HFY22 expected, as GENS is likely to experience growing volume from 2HFY22 after a slow start in April/May. The company is still cautiously optimistic of the recovery trajectory in view of the border reopening as more travelers return to the island state which should augur well for GENS. Meanwhile, the expansion story of RWS 2.0, in which it has invested SGD400m capex in 2022, is progressing well. It had broken ground for Minion Land in May 2022, which is part of the Universal Studios of RWS 2.0, together with the refurbishment works for the theme park and three of its hotels, getting ready for borders reopening.

A recovery is on the way; maintain OP on GENTING. While 1HFY22 results were disappointing, we remain optimistic that the two-year lackluster earnings streak at GENS is likely ending with earnings recovery expected from 2QFY22 as the reopening of international borders from April 1 could slowly bring back visitorship. And, this would apply to GENM as well. This should eventually benefit parent-company GENTING as well. For now, pending the release of the group’s 2QFY22 results this month-end, we are keeping our OP call and TP of RM5.86 (at +1SD to 5-year mean at 41% discount to SoP valuation).

Risk to our call on GENTING is a prolonged/resurging COVID-19 pandemic continuing to restrict travelling and hence affecting its casino operations.

Source: Kenanga Research - 15 Aug 2022