Genting Malaysia Berhad (GENM), prepared by Maybank Investment Bank Berhad on August 29, 2024. The report provides an in-depth analysis of GENM’s financial performance for the second quarter (2Q24) and first half of 2024 (6M24), along with future outlook and investment recommendations. Here’s a detailed summary with elaborations:
Key Financial Highlights
- 2Q24 and 6M24 Performance:
- Revenue: GENM’s revenue for 2Q24 was MYR 2,669.5 million, a 7.9% year-on-year (YoY) increase from 2Q23 but a slight 3.5% decline compared to 1Q24. The total revenue for the first half of 2024 (6M24) was MYR 5,434.4 million, marking a 14.2% YoY growth.
- EBITDA: Earnings before interest, taxes, depreciation, and amortization (EBITDA) for 2Q24 stood at MYR 747.5 million, a 9.7% increase YoY, although it was down 6.2% quarter-on-quarter (QoQ). For 6M24, EBITDA was MYR 1,544.0 million, up 18.5% YoY.
- Net Profit: The core net profit for 2Q24 was MYR 106.1 million, a decrease of 12% YoY and 56% QoQ. The 6M24 core net profit was MYR 344.5 million, more than doubling from 6M23, reflecting a 111% YoY increase.
- Segmental Performance:
- Malaysia: The revenue from Malaysia in 2Q24 was MYR 1,615.1 million, up 5.3% YoY, although it declined by 7.6% QoQ. The EBITDA from Malaysia decreased slightly by 1.4% YoY to MYR 524.8 million due to the full-quarter impact of the Sales and Service Tax (SST) hike.
- United Kingdom and Egypt: This segment saw a 20.1% YoY increase in revenue to MYR 468.8 million, with EBITDA growing by 8.9% YoY to MYR 64.8 million.
- United States and Bahamas: Revenue grew by 11% YoY to MYR 527.8 million, with a significant 21% YoY increase in EBITDA to MYR 176.7 million.
Strategic and Operational Insights
- SST Impact: The report notes that the increase in SST from 6% to 8% starting March 2024 had a tepid negative impact on EBITDA margins, particularly at Resorts World Genting (RWG), which saw a slight margin compression.
- Visitor Traffic: Visitor arrivals at RWG grew significantly, reaching 11.7 million in 6M24 compared to 10.1 million in 6M23, driving higher revenue despite the SST hike.
- Resorts World New York City: The New York operations continue to perform well, contributing positively to the overall EBITDA growth.
Future Outlook
- Earnings Projections: The report maintains the earnings and dividends estimates for the rest of FY24, with an expected seasonally stronger performance in 2H24. GENM is anticipated to capitalize on year-end holidays and potentially benefit from the reopening of its mass gaming floors, such as Circus Palace and Hollywood, which were closed for renovations.
- Dividend: An interim dividend of 6 sen per share was declared, consistent with previous periods, but the final dividend payout is expected to be higher in line with GENM’s historical practices.
- Valuation and Recommendation: The report reiterates a “BUY” rating for GENM with a target price of MYR 3.09, based on a Discounted Cash Flow (DCF) valuation. The potential upside includes the possibility of securing a full casino license for Resorts World New York City, which could add significant value to the stock.
Risks and Considerations
- Taxation and Regulatory Risks: The increase in SST and potential future tax changes could impact profitability.
- Operational Risks: Delays in the reopening of renovated gaming floors could affect earnings projections.
- Market Sentiment: Any adverse political developments or economic downturns in Malaysia could negatively affect visitor traffic and overall revenue.
Conclusion
Genting Malaysia is positioned for continued growth, driven by strong visitor numbers at RWG, positive contributions from international operations, and strategic expansions. Despite some challenges, such as the SST hike, the company’s fundamentals remain robust, and it offers attractive upside potential for investors.
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