Introduction

The report by UOB Kay Hian provides an in-depth analysis of Genting Malaysia Bhd (GENM), focusing on its financial results, operational performance, and strategic outlook. The insights gathered are crucial for investors aiming to understand the company’s current position and future prospects.

Company Overview

Genting Malaysia Bhd, a prominent entity in the consumer discretionary sector, is renowned for its operations in casinos, resorts, and theme parks. The company is listed under the Bloomberg ticker GENM MK and boasts a market capitalization of RM12,015.6 million (US\$2,702.3 million). The company’s stock performance has been volatile, with a 52-week high/low of RM2.92/RM2.12.

3Q24 Financial Results

Genting Malaysia reported a decline in EBITDA due to increased operational expenses in its US and Malaysia divisions. Nevertheless, earnings from Resorts World Genting (RWG) and international operations surpassed pre-pandemic figures. Despite challenges, the company’s earnings momentum remains resilient, supported by a generous dividend yield of 7-9%.

Performance Breakdown

Revenue and EBITDA

For the quarter ending 31 December, GENM’s revenue rose to RM2,749.1 million, a modest increase of 1.5% year-on-year. The adjusted EBITDA stood at RM723.1 million, reflecting a 10% year-on-year decline. Key contributors included the UK division, which saw a 60.5% quarter-on-quarter rise in revenue due to enhanced gaming and non-gaming activities.

Regional Insights

The Malaysian leisure sector faced a 6% drop in EBITDA due to higher operational expenses, despite a 10% increase in hilltop visitors. The UK operations benefited from improved business volume, leading to a 5% year-on-year rise in EBITDA. In the US, revenue grew marginally, even as EBITDA declined due to higher payroll costs.

Stock Impact and Market Dynamics

Genting Malaysia’s stock has faced significant challenges over the past decade, leading to a marked decline in share price from its peak in 2017. These challenges include the termination of the 20th Century Fox World theme park, increased gaming duties, and the impact of COVID-19. Despite these setbacks, the current share price is deemed to have absorbed most negative news, and investor sentiment is expected to recover.

Future Outlook and Recommendation

Genting Malaysia’s future prospects look promising, with earnings consistently exceeding pre-pandemic levels. The company’s operations in the United States, particularly Resorts World New York City, have shown significant growth since 2019. However, the potential exclusion from the KLCI index remains a concern, although this is likely priced into the current share valuation.

Valuation and Recommendation

The report maintains a “Buy” rating for Genting Malaysia, with a revised target price of RM2.83, down from RM3.29. This adjustment reflects a recalibration of the valuation yardstick to account for potential de-rating due to the KLCI exclusion. The target price implies a 7.2x 2025F EV/EBITDA, highlighting the company’s attractive risk-reward profile.

Environmental, Social, and Governance (ESG) Updates

Genting Malaysia is committed to sustainable practices, as evidenced by its collection of 1,180 tonnes of recyclable waste globally in 2020 and a significant reduction in carbon footprint. The company has also contributed over RM8 million to community investments and adheres to the Malaysian Code on Corporate Governance.