• GENM likely to see increased foreign visitations in 3Q24, but recent strength in the Ringgit may hinder visitation volume

• Risk of being removed from FBMKLCI list in Nov24 review after falling to 36th spot

• Cut 2025–26E earnings to account for forex and higher interest costs. Reiterate BUY with lower SOP-derived target price of RM3.30

Expect sequential stronger foreign visitations in 3Q24

The sharp appreciation of the Ringgit against other regional currencies over the past 3 months may hinder foreign visitations, which account for c.20% of 2Q24 hilltop arrivals. While tourists’ arrival from China has more than doubled YoY in 2Q24, this remains 38% below the pre-Covid levels. The shortfall was cushioned by stronger-than-expected visitations from Singapore (+9% YoY), Indonesia (+3% YoY), collectively driving +15% YoY rise in foreign visitors in 2Q24. The foreign arrivals remained robust in Jul–Aug24, reaching c.96% of pre-Covid levels, suggesting 3Q24 visitations to the hilltop could be sequentially stronger in 3Q24. We do not change our visitation assumptions at the current juncture, as we believe the tourism recovery remains intact.

Likely to be excluded from FBMKLCI in Nov24

Based on the latest market capitalization standings, GENM is at risk of dropping out from the FBMKLCI component in the Nov24 semi-annual review, having fallen to 36th spot. This is expected to be replaced by Gamuda (BUY; TP: RM9.20), which has risen above 25th spot since Jul24. The potential risk of removal could lead to share price overhang in the near term due to index fund rebalancing. However, we do not anticipate a material effect, as foreign ownership in GENM is at its lowest level of 15.1% as at Jun24.

Maintain BUY, lower SOP-derived target price to RM3.30

We expect headline EBITDA and net profit to benefit from unrealized forex gains on US$- denominated borrowings in 3Q24; however, these gains are deemed non-core. We cut our 2024E earnings by 1% and 2025–26E by 9% after imputing a stronger Ringgit and higher interest costs. We continue to advocate investors accumulate on share price weakness, as GENM trades at an undemanding 6.6x 2025E EV/EBITDA (-1.5SD its 10-year mean), with a 7% dividend yield. Key downside risks include lower-than-expected win rates, a hike in gaming taxes, drag from key associates, and value-destructive related-party transactions.

Source: Philip Capital Research - 8 Oct 2024