In-Depth Analysis on Genting Malaysia and Related Companies

Date of Report: January 6, 2025

Broker Name: Maybank Investment Bank Berhad

Overview of the Report

The report by Maybank Investment Bank Berhad offers a thorough examination of Genting Malaysia, including its operations, new developments, financial performance, and future prospects. It also addresses key risks, sustainability metrics, and investment recommendations. The analysis dives deep into the company’s global ventures, including its properties in Malaysia, the UK, the US, and the Bahamas.

Genting Malaysia: Key Developments and Financial Insights

New Genting Casino: A Positive Step, But Limited Impact

Genting Malaysia (GENM MK) has launched a new mass gaming floor named “Genting Casino.” While this is seen as a positive development, its limited size—estimated at 10,000 to 20,000 square feet—means its impact on overall revenue is minimal. This new floor is divided into two thematic areas, resembling Sky Casino and traditional Chinese settings. It features lower-yielding slot machines and electronic tables, which offer higher margins due to reduced staffing requirements. However, the absence of smoking lounges is a drawback as it may shorten gamblers’ playtime.

Circus Palace and Hollywood Gaming Floors: Delayed Reopenings

The much larger Circus Palace and Hollywood mass gaming floors remain closed for renovations since February 2024. Despite visible signs of ongoing work, no reopening date has been set. These floors represent a significant portion of the company’s gaming capacity, and their delayed reopening has led to a 25% reduction in long-term gross gaming revenue forecasts.

Sky Casino: Business As Usual

Sky Casino continues to absorb the mass market gamblers from the closed gaming floors. Although the crowd was thin during the research visit due to the end of year-end holidays, new smoking lounges were positively noted. The casino has shifted its focus to slot machines and electronic tables on the first floor to optimize staff costs post-peak season. Minimum table bets range from MYR25 to MYR100.

Financial Metrics and Recommendations

The report maintains a BUY recommendation for Genting Malaysia, with a 12-month price target of MYR2.73. The company is valued at a discount compared to its peers, and the analysts believe it holds deep value despite recent challenges. However, for substantial earnings growth, the reopening of Circus Palace and Hollywood gaming floors is crucial.

Key financial highlights include:

• Revenue for FY24E is forecasted at MYR10.8 billion, with EBITDA at MYR3 billion.
• Core net profit is expected to grow by 17.8% in FY24E and 14.3% in FY25E.
• Net dividend yield remains steady at 6.7%.

Global Ventures of Genting Malaysia

Resorts World New York City

The company’s investment in Resorts World New York City (RWNYC) has been successful, with a 40-year discounted cash flow valuation of MYR3.83 billion. This property contributes significantly to Genting Malaysia’s bottom line, although it faces high gaming tax rates, with 44% of gross gaming revenue allocated to the New York State education fund.

Genting UK

Genting UK (GENUK), valued at MYR1.23 billion, has proven to be a more positive acquisition than initially expected. EBITDA for the property had peaked at GBP50 million in FY16. However, the property’s contribution to overall profitability remains limited compared to the Malaysian operations.

Resorts World Bimini

The Bahamas-based Resorts World Bimini remains a non-contributor to Genting Malaysia’s bottom line. The property has been valued at nil in the report due to ongoing challenges in achieving profitability.

Environmental, Social, and Governance (ESG) Metrics

Genting Malaysia scores an overall ESG rating of 48/100, slightly below the industry average of 50. The company has implemented several initiatives to improve its sustainability metrics, including:

• Phasing out plastic straws and replacing food containers with biodegradable alternatives.
• Introducing recycling bins and rainwater harvesters.
• Operating an advanced cable car system to reduce traffic congestion and pollution.

Despite these efforts, the company needs to strengthen its ESG framework by capturing Scope 3 emissions, adopting the TCFD framework, and committing to carbon neutrality.

Risks and Challenges

The report highlights several risks, including:

• Potential delays in reopening the Circus Palace and Hollywood gaming floors.
• Related party transactions that may not favor minority shareholders.
• Political risks, as opposition-controlled states have previously shut down gambling operations.

Conclusion

Genting Malaysia remains a resilient player in the casino and gaming industry, with significant potential for growth once its major gaming floors reopen. The new Genting Casino is a step in the right direction, although its limited size restricts its immediate impact on the company’s financials. The BUY recommendation with a price target of MYR2.73 reflects analysts’ confidence in the company’s long-term value.