Genting Malaysia to be worst-hit under movement restrictions

By SHAZNI ONG / Pic By TMR

GENTING Malaysia Bhd (GenM) is expected to be the most heavily impacted among gaming companies under Malaysia’s Movement Control Order (MCO), as the firm operates mainly in the consumer reliant sectors of leisure, hospitality and gaming.

GenM announced on Tuesday that Resorts World Genting (RWG), Resorts World Awana, Resorts World Kijal and Resorts World Langkawi will be temporarily closed from March 18 to 31, 2020, in compliance with the MCO, which took effect yesterday.

Resorts World Casino New York City (RWCNY) and Resorts World Catskills (RWC), both located in New York, are also temporarily closed until further notice.

GenM’s closure of all its Malaysian operations makes it the biggest loser from the MCO, Affin Hwang Investment Bank Bhd (Affin Hwang Capital) said.

“We are lowering our earnings per share (EPS) forecast for 2020 by 8.4% to factor in the shutdown for its Malaysian and US operations.

“Our numbers already assume lower GDP growth forecast for Malaysia of 3.3% for 2020,” it wrote in a note yesterday.

The research house also lowered its 12-month target price (TP) on the group to RM1.92 (from RM2.10), while maintaining its ‘Sell’ call.

It said GenM’s decision to close most (if not all) of its facilities in Genting Highlands would help lower its overall operating cost during the shutdown period.

Yet, the loss of revenue is too significant, which is estimated at around RM250 million for the 14 days, Affin Hwang Capital said.

“Given that construction works are also put on hold, we do not discount the possibility that the new outdoor theme park, which is scheduled to open in this year’s third quarter (3Q20), could face further delays. As such, we now expect flat visitation growth for 2020,” it added.

Meanwhile, Genting Bhd will be indirectly impacted due to its exposure to GenM, as it owns a 49% stake in GenM.

“Although there are reports that some casinos on the Las Vegas strip will be closed for 15 days, we do not think it will affect the construction progress on Resort World Las Vegas, which is scheduled to start operations by 2021,” the research firm said.

It lowered its EPS forecast on the group by 3.5% for 2020 and 12-month TP to RM4.30 (from RM4.55), while upgrading Genting to ‘Buy’ on valuation grounds. Kenanga Investment Bank Bhd cut its estimates for GenM’s earnings in the financial year ending Dec 31, 2020 (FY20) by 29% to reflect the impact from slower business volume in the first half of 2020 (1H20), arising from the pandemic, before a recovery in 2H20.

AllianceDBS Research said GenM’s FY20 earnings could drop by 6.1% to RM808 million, based on the assumption that the closure period results in a 1% drop in visitation numbers for Genting Highlands’ operations, bringing FY20 visitors down to 27.1 million from 27.4 million.

“This takes into account that it is off-peak season for visitations. The temporary closures of RWCNY and are not expected to have a material financial impact to the group as a whole, given that its US operations contribute less than 15% to the group’s overall earnings,” it said.

Shares of GenM closed 0.95% or two sen higher at RM2.12 yesterday, valuing the company at RM12.59 billion, while Genting ended 4.02% or 13 sen lower at RM3.10, giving the group a market value of RM12.02 billion.