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Bird's eye view of Resort World Genting.

PETALING JAYA: Genting Malaysia Bhd’s (GenM) second quarter earnings are expected to take a severe hit due to disruptions to its business from the movement control order (MCO).

RHB Research, in a report, said GenM’s upcoming first quarter results should register positive earnings before interest, taxes, depreciation and amortisation (Ebitda) as visitor arrivals only declined slightly prior to the MCO in mid-March.

“However, the second quarter will likely see a net loss due to the closure of at least two months. Assuming a monthly fixed operating cost of RM100mil, 2Q20 could register negative Ebitda of around RM300mil.

“However, the amount could be lower once cost cutting measures (such as salary cuts) start to take effect.”

RHB Research said Resorts World Genting remained closed with the conditional movement control order now extended to June 9.

“The 12-week closure should lead to an estimated loss of six to seven million in visitor arrivals and RM1.6bil in revenue. Similarly, all of its overseas operations have closed since mid-March until further notice. Every one week closure of its overseas operations should see revenue loss of RM60mil.”

The research house estimated GenM’s current financial year to register RM141mil losses (from RM885mil profit) after factoring in the extended closure and slower second half 2020 recovery.

“Financial year 2020 visitor arrivals are expected to decline 40% year-on-year. Our 2021 earnings are also cut by 9% after assuming a slower recovery as visitors may take time to regain confidence to participate in social activities.”

Nevertheless, the research house said GenM’s strong balance sheet will steer the company through this challenging period.

“Our 2020 net gearing of 0.26-times is still not alarming. Historically, operating cash flow has been strong at RM2.5bil per annum. Once business normalises, net gearing should improve, especially as GenM is at the end of its capital expenditure spending.”

RHB Research has maintained a target price of RM2.97 for the stock.

“Our target price is derived after rolling forward our base year while lowering our valuation multiple in view of the further risk of a prolonged Covid-19 pandemic. The target 2021 enterprise value to Ebitda of 7.1-times is conservative at minus one standard deviation.

“Maintain ‘buy’ as we believe earnings will eventually recover.

“Longer-term prospects remain intact with the expected opening of its outdoor theme park by the third quarter of 2020 and continuous turnaround of Empire Resorts.

“Despite the recent share price recovery, current trading valuation of 0.8-times price-to-book value and 5.8-times 2021 enterprise value to Ebitda remains attractive compared to its regional peer average of nine-times.”


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