Genting to benefit from improved visitors’ arrival, says CGS-CIMB Research


CGS-CIMB Securities Sdn Bhd (CGS-CIMB Research) reiterated an ‘Add’ call on Genting Malaysia Bhd as it anticipates the business will rebound, driven by pent-up demand for both Resort World Genting’s (RWG) casino and SkyWorlds.

The research bank increased standard operating procedure-based target price to RM3.40.

Most of RWG’s casino areas have returned to operation, with entry allowed for non-members since late-January 2022.

“RWG has also begun to advertise actively overseas, especially in Singapore (foreign tourists made up 10%-15% of all visitors in financial year 2019 [FY19]),” CGS-CIMB Research said in a research report yesterday.

RWG’s FY22-24F Ebitda margin is expected to ease slightly to 33% from the fourth quarter of 2021’s (4Q21) 34% (win-rate normalised) on higher operating expenditure (opex): Staff re-hiring and SkyWorlds.

The electricity tariffs will rise by 10% with the imposition of surcharges in February to June 2022, with estimated utilities (including water) will be less than 10% of opex (ex-depreciation) in FY19.

Meanwhile, CGS-CIMB Research also estimates SkyWorlds’ visitor arrivals to improve in the second half of 2022 due to the opening of more rides since the park has been slower since its soft opening on Feb 8, 2022.

It assumed 1.5 million, 2.3 million and 2.5 million SkyWorlds’ visitors in FY22F/23F/24F respectively from 3.1 million visitors of the old outdoor theme park in FY12.

“Including spillover benefits on other RWG facilities, we see a net negative hit of RM174 million/RM58 million to Genting’s profit before tax in FY22F/23F and accretion from FY25F onwards.

“As per the New York State Gaming Commission, the report also assumed Resorts World New York City (RWNYC) should do well at the slots this year (FY22F).

“1Q22 gross gaming revenue rose 18% year-on-year (YoY) (-2% quarter-on-quarter) and is now a mere 3% shy of 1Q19’s,” it said.

The research outfit expects occupancy rate (4Q21: 37%) at its new Hyatt Regency hotel which opened in August 2021 to rise in FY22F, as passenger traffic at John F Kennedy International Airport recovers further up 2.2 times YoY in February 2022 but still below February 2019’s by 26%, it said.

It also noted RWNYC has the potential to win the budget and full casino licence award from the New York state budget, approved on April 9, 2022, for at least US$500 million (RM2.12 billion) by end of this year or early 2023.

“We believe RWNYC may have an edge as it will be able to quickly generate more gaming taxes hence create new jobs for the state since it has a strong community support and siting approvals. If it wins, we see extra net profit of RM274 million from RWNYC in FY26F higher than in FY23-25F, before a third casino opens, enhancing Genting’s equity fair value by 44 to 51 sen per share.

“Its FY23F enterprise value/Ebitda of 6.8 times is one standard deviation below its historical pre-Covid-19 mean, with good 4.9%-7.8% FY22-24F yields,” it noted.

Nonetheless, the downside risk remains if any resort closes further due to Covid-19.