Theme parks to drive growth for Genting group


THE opening of the much-awaited outdoor theme parks in Genting Highlands will likely sustain Genting Bhd and Genting Malaysia Bhd (GenM) growth prospects for the second half of the financial year 2020 (2HFY20).

Despite FY20 set to be a challenging year for the group, AllianceDBS Research Sdn Bhd expects operations will start picking up in the third quarter (3Q).

“We believe the opening of the outdoor theme parks will boost the visitations to Genting Highlands, which could sustain its growth prospects in the 2HFY20,” the research outfit noted in a report last week.

The commencement of Resorts World Las Vegas (RWLV) is expected to be a key rerating catalyst for the group in which the casino and entertainment service provider’s management high- lighted the construction of RWLV is progressing well and is expecting the casino and resort to commence operations by the summer of 2021, AllianceDBS Research noted.

The total investment cost for the project is US$4.3 billion (RM18.49 billion) and the group has spent US$1.9 billion as of end December 2019.

“Management highlighted that they are planning to incur about RM5 billion of capital expenditure per annum for 2020 and 2021 to complete the project.

“The success of this venture, the group’s first direct involvement in the US gaming sector, could change the group’s earnings profile,” the firm said.

AllianceDBS Research has maintained its ‘Buy’ call on Genting but revised downwards the target price to RM5.55 from RM6.80.

As the parent company of Genting Singapore (GenS) and GenM, Genting has seen its business and operations affected by the Covid-19 pandemic, which is expected to affect earnings in the upcoming financial quarters.

The gaming and hospitality giant recently confirmed it is embarking on its maiden pay cut exercise as the Covid-19 pandemic forces its casinos, resorts, and entertainment theme parks to be temporarily shut.

This led AllianceDBS Research to cut GenM’s FY20 and FY21 earnings forecasts by 26% and 16% respectively.

This was mainly to account for lowering the firm’s visitors’ assumption for FY20 and FY21 to 26.6 million and 28.3 million respectively due to the Covid-19 impact in FY20 and taking a more conservative stance for FY21.

“Contributions from its US operations will contract by 15% for FY20 and our assumption that other overseas contributions will contract by -10% for FY20.

“Post revision, we assume visitor growth for FY20 and FY21 at -8% and 7% respectively,” it said.

Other than GenS and GenM, Genting also owns Genting Plantation Bhd (GenP) and other non-listed businesses such as power and oil and gas (O&G) units.

In the power business, the group has substantial interests in coal-fired, gas-fired and wind power plants in Indonesia, China and India.

For its O&G business, Genting has 100% participating interest in onshore O&G development activities in the Kasuri Production Sharing Contract in West Papua, Indonesia.

It also has 49% working interest in a contract for the exploration, development and production of petroleum in the Chengdaoxi Block in China.

“Although we believe these operations are likely to be adversely impacted by the slowing economic activities and collapse in oil price, we wish to highlight the earnings contributions of these unlisted entities to the group remain small.

“In FY19, these unlisted entities contributed less than 10% to the group’s earnings,” AllianceDBS Research stated.

Accordingly, the research firm cut Genting’s FY20 and FY21F earnings estimates by 39% and 18% respectively to reflect the combined effects of lower earnings estimates of GenS and GenM, and reduced the earnings contributions from its unlisted entity, particularly the O&G and power segments, as well as for bookkeeping purposes.

“We believe our earnings estimates for FY20 and FY21 are rather conservative (now 26% and 13% respectively below consensus),” it said.

Maybank Investment Bank Bhd stated the easing of the Covid-19 pandemic will be positive for GenM.

GenM in a special section under its latest annual report released last month stated that it is not prudent at this juncture to issue any statement on the group’s prospects, given these unprecedented times of uncertainty.

“We believe that several months will have to pass from reopening before GenM’s casinos’ operations can return to normalcy and drive daily gross gaming revenue run rates to pre-Covid-19 pandemic levels,” Maybank stated.

The investment bank now assumes the Resort World Genting will shut for eight weeks (two previously), other casinos will shut for 12 weeks (nil previously) and all casinos will take six months from reopening to ramp up to 100% utilisation.

“We slash our FY20E earnings estimate to -RM290 million (RM664 million previously), but cut our FY21E and FY22E earnings estimates by a narrower 13% and 5% respectively as operations normalise,” Maybank noted in a report last week.