Genting Malaysia (GENM) posted a net loss of RM27.4m for 1QFY23, as the tourism and hospitality industry struggles to revert to pre-pandemic levels due to a weak global economic environment. Although we are seeing improvement in business volume in Malaysia and the US & Bahamas, tourist arrivals are still limited by airlines’ capacity constraints and weak consumer spending. Results were below expectations. We cut our FY23-25F earnings forecasts by an average of 17% to account for lower contribution from Resorts World Genting (RWG), as we expect a weaker recovery of international travels. As such, our TP is reduced to RM3.10. However, we are still positive that earnings would gradually recover from the aftermath of the Covid-19 pandemic. Maintain

Outperform.

• 1QFY23 revenue jumped 32.7% YoY, mainly due to stronger contribution from Malaysia (+52% YoY) and the US & Bahamas (+29% YoY). The opening of SkyWorlds theme park has contributed to higher non-gaming revenue while business volume improved following the removal of travel restrictions. The US & Bahamas also chalked higher revenue from Resorts World New York City and Hilton Miami Downtown.

• Headline net loss. Despite posting stronger revenue, GENM continued to be loss-making due to losses incurred by its associate, Genting Empire Resorts. Depreciation and tax costs have also increased. However, stripping out non-operating items, core net profit worked out to be RM4.6m.

• Land disposal to unlock value of non-core asset. GENM recently announced the proposed sale of four parcels of land in Miami for a total cash consideration of USD1.23bn (equivalent to ~RM5.43bn). The group is expected to recognise a gain on disposal amounting to USD966m (equivalent to ~RM4.29bn). We are positive on this as it enables the group to capitalise on the growth of the property market and unlock significant value in a non-core asset at an attractive price. In addition, GENM’s net gearing is estimated to improve from 0.65x to 0.52x, mainly due to higher equity value as we assume total debt remains unchanged, given that cash proceeds will be allocated for general corporate and investment purposes.

Source: PublicInvest Research - 26 May 2023