HLIB lowers GenM target price to RM2.27 on lower earnings outlook amid temporary closure of casinos

KUALA LUMPUR (Jan 22): Hong Leong Investment Bank (HLIB) Research has lowered its target price (TP) for Genting Malaysia Bhd (GenM) to RM2.27, from RM2.43, on the back of lower earnings forecasts to reflect a fall in visitorship following the temporary closure of its casinos resulting from the latest movement restriction sanctions imposed by the government of Malaysia and the UK to stem the spread of the Covid-19 pandemic.

“We have lowered our TP to RM2.27 as we impute our lower earnings before interest, tax depreciation and amortisation (EBITDA) forecast from our adjustment to visitorship in FY21 (the financial year ending Dec 31, 2021), while leaving our enterprise value (EV)/EBITDA multiple assumption unchanged at 7.5 times,” said HLIB in a note.

HLIB’s Low Jin Wu said that investor sentiment would be muted at this juncture due to uncertainties regarding the length of the lockdown period.

Against this backdrop, Low slashed HLIB’s earnings forecast by 32% for GenM for FY21 on expectations of lower visitorship and contributions by Resorts World Genting (RWG) and foreign casinos.

“We have assumed a two-month closure and a 20% fall in visitorship for RWG as we choose to remain conservative during this period of uncertainty,” said Low.

HLIB also assumed a 20% decrease in visitorship for GenM’s UK operations to factor in the country’s lockdown measures implemented in the first week of January.

Nonetheless, HLIB, which kept its “hold” rating of GenM, said it had maintained its FY22 earnings forecast numbers as it expects a steep V-shaped recovery to happen.

The research house now anticipates the company to generate an annual net profit of RM596.8 million for FY21 and RM1.35 billion for FY22, still higher compared to the projection of making a loss of RM1.33 billion for FY20.

For the cumulative nine months ended Sept 30, 2020 (9MFY20), GenM reported a net loss of RM2.02 billion versus a net profit of RM1.1 billion for the year-ago period, while revenue more than halved to RM3.48 billion from RM7.96 billion, primarily due to unprecedented disruption to the group’s leisure and hospitality operations worldwide amid the outbreak of the Covid-19 pandemic.

Yesterday, GenM announced the closure of RWG and other resorts in Malaysia from today to Feb 4 following the expanded movement control order (MCO).

Pahang, Perak, Kedah, Perlis, Negeri Sembilan and Terengganu are the latest additions to states under the MCO, effective from today to Feb 4.

This came after the MCO was reimposed on Penang, Selangor, Melaka, Johor and Sabah, as well as the Federal Territories of Kuala Lumpur, Putrajaya and Labuan, from Jan 13 to Jan 26. However, the sanction in these states has now been extended to Feb 4.

GenM shares had slid one sen or 0.42% to RM2.37 as at 10.15am today, bringing it a market capitalisation of RM14.07 billion, with 1.59 billion shares transacted. Compared to its recent peak of RM2.83 on Dec 16, the stock had fallen 16%.

Source: TheEdgeMarkets