Genting Bhd - A Proxy to Tourism Rebound

Date: 
2023-11-24
Firm: 
KENANGA
Stock: 
Price Target: 
5.60
Price Call: 
BUY
Last Price: 
4.77
Upside/Downside: 
+0.83 (17.40%)
Firm: 
KENANGA
Stock: 
Price Target: 
3.07
Price Call: 
BUY
Last Price: 
2.87
Upside/Downside: 
+0.20 (6.97%)

GENTING’s 9MFY23 results beat expectations. Genting Singapore (GENS) and Genting Plantation (GENP) reported strong 3Q earnings while Genting Malaysia (GENM) returned to profitability. We raise our FY23-24F net profit forecasts by 30% and 31%, respectively, lift our TP by 8% to RM5.60 (from RM5.20) and reiterate our OUTPERFORM call.

Its 9MFY23 core net profit beat expectations, accounting for 76% and 86% our full-year forecast and the full-year consensus estimate, respectively. The variance against our forecast came largely from stronger leisure & hospitality (L&H) performance at GENS and RW Las Vegas along with the turnaround at GENM (OP; TP: RM3.07) on rising footfall even though GENM’s recovery was more gradual than we had expected.

YoY, its 9MFY23 core net profit surged 2-fold to RM788m as RW Singapore saw strong YTD rebound. GENM also saw a CNP uptrend on better Malaysian and UK contributions. Plantation (GENP)’s 9- month earnings eased YoY against very high CPO prices a year ago but 3Q earnings picked up QoQ and YoY. Power division’s revenue grew on better China and Indonesia performances with lower coal prices.

QoQ, its 3QFY23 core net profit surged 2.6x underpinned by strong rebound momentum at L&H. Footfall including foreign arrivals at RS Singapore and GENM’s RW Genting were up. GENP also saw better profits as margins recovered on lower cost and flattish CPO prices. Higher offtake in China also lifted its power division earnings.

Forecasts. We upgrade our FY23-24F net profit forecasts by 30% and 31%, respectively, to reflect better earnings from GENP, RW Las Vegas as well as its power segment but we are keeping our 16.0 sen NDPS forecast unchanged.

GENTING offers good exposure to L&H potentials in SE Asia (notably Singapore and Malaysia), from current ongoing post-pandemic recovery to longer term regional economic driven upside. Revenues at GENS and GENM have already recovered and outbound mainland Chinese tourists to SE Asia have yet to reach pre-pandemic levels. Moreover, GENM’s earnings in Malaysia and USA are weighed down by still heavy marketing and recruitment costs as existing facilities are reopened with new ones commencing operations. We believe GENM margins should revert to more normal levels as such costs abate.

Nonetheless, following our earnings revision, our new SoP-based TP is nudged up from RM5.20 to RM5.60 based on a 40% discount which encompasses: (i) a holding company discount for its listed entities, and (ii) a risk premium to reflect related party transactions (see Page 3). There is no adjustment to our TP based on ESG given a 3-star rating as appraised by us (see Page 5).

Risks to our recommendation include: (i) non-renewal of licenses, (ii) unfavourable prize payout ratios, (iii) weak consumer spending, and (iv) products perceived to be socially undesirable.

Source: Kenanga Research - 24 Nov 2023

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