Coronavirus to weigh on Genting’s 1H20 financial performance

Genting will not raise additional A&P budget as the stimulation effect may not be obvious, says the research house

by SHAHEERA AZNAM SHAH/ pic credit: Facebook

GENTING Bhd’s financial performance in the first half of 2020 (1H20) is expected to be dampened by the Covid-19 outbreak that has restricted visitation to entertainment premises and resulted in anticipated declining cruise passengers.

TA Securities Holdings Bhd noted in a recent report that while it is too early to estimate the impact of the virus outbreak, the research house is pessimistic of the group’s outlook this year.

“With regard to the Covid-19 outbreak in China, it is too early to know the impact. However, the group is generally pessimistic about the outlook for 1H20.

TA Securities added that the company would not raise additional advertising and promotion (A&P) budget as the stimulation effect may not be obvious.

However, it plans to refurbish 200 to 300 out of its 21,000 room inventories in Singapore to cater for the pent-up demand once the outbreak is contained.

The research house said it has cut Genting’s earnings for the financial year (FY19) by 4.3% due to the lower than expected earnings by the group’s 53%-owned subsidiary, Genting Singapore plc.

“We cut Genting’s FY19 earnings by 4.3% due to lower than expected earnings from Genting Singapore and we cut its FY21 earnings by a greater degree of 24% to factor in the potential disruption to casino operations due to Covid-19 outbreak in 2020.

“Specifically, we expect the gaming volume to reduce by 5% from a growth of 10%, reduce the hotel occupancy rate to 88% from 92% previously and trim the growth in theme park visitors by 5% for FY20,” it said.

For the group’s valuation, the research house has cut Genting’s sum-of-parts valuation to RM6.45 per share from RM6.85 per share previously.

It maintains its ‘Buy’ recommendation as it anticipates a speedy earnings recovery when the spread of the virus is contained.

“The key risk to our call is possible casino shutdowns in Singapore and Malaysia, which will have a devastating impact on the group,” it said.

Genting Singapore’s revenue for the fourth quarter of 2019 (4Q19) declined 8.7% year-on-year to S$607.2 million (RM1.81 billion), mainly due to the VIP gambling segment market and the rise in casino entry levy.

“For this quarter, the rolling win rate was 3.4% with 43% of VIP rolling volume market share. The mass win market share was at 35% and the overall gross gaming revenue market share stood at 37%,” it said.

Genting Singapore’s non-gaming revenue was flat at S$218.9 million with a relatively stable hotel occupancy rate of 92%.

Its average daily visitation stood at 20,000 in 4Q19, while 20% of the visitation was from Chinese tourists.

Genting’s shares rose 1.3% or seven sen yesterday to RM5.46, bringing its market capitalisation to RM21.17 billion.