Genting Malaysia’s 1HFY23 results were disappointing recording a loss, while the tourist arrivals at its Malaysian operations grew 10% YoY, and its US operations saw better performance, its UK operations weakened further. No help either, margins were compressed by high marketing and staffing costs. Resulting in this, local investment house Kenanga cut its FY23F and FY24F net profit by 33% and 15%.
Recording a core net loss of RM99.7m, vs. a full-year profit, the group dipped into the red on higher operating costs as well as due to forex losses of RM261m in the second quarter. It reported a 2QFY23 core net loss of RM112m, from a profitable quarter a year ago. Resorts World Genting’s earnings came in stronger QoQ and YoY despite the Chinese New Year effect in 1Q. Footfall rose 10% at the hilltop, thanks to good demand and more rooms being made available and sold. New assets in the US and post-Covid normalisation in the Bahamas also lifted earnings QoQ and YoY but UK’s underlying business weakened with earnings aided by favourable exchange rates. GENM declared a 6.0 sen interim dividend (flat YoY).
The outlook for the rest of the year remains weak but optimistic of a recovery from an improved footfall; RWG saw 12m visitors in 1HFY23 (+20% YoY) which is still about 10%-20% below the pre-pandemic level. As such, the house believes there is still room to grow. Moreover, Kenanga suspects RWG is only starting to manage yields so as to achieve higher spending per visitor. Footfall-wise, except for mainland Chinese, the local crowd has returned along with Singaporeans but promotional and marketing spending looks set to stay high along with rising personnel costs.
North American contributions have surpassed the pre-pandemic level, thanks in part to earlier post-Covid relaxation in US (mid 2021). Firm consumer spending and capacity expansion also helped. Better earnings from RW New York City are likely due to the opening of Hyatt Regency JFK Airport in Aug 2022. 49%- Associate Empire has also launched Resorts’ RW Hudson Valley in Dec 2022 and is now breaking even. However, despite the revenue uptrend, FY23-24F earnings are likely to stay muted due to heavy marketing spending to raise the awareness of these new assets.
However, its UK operation is facing a headwind as inflationary pressures and weak consumer confidence dampened volume.
With an outperform call, GENM is already benefiting from the tourism rebound at RWG even if the mainland Chinese has yet to return to the pre-pandemic level. New assets at RWG and in the US are also supportive of stronger revenue ahead but earnings are lagging due to promotional costs as well as the need to recruit more personnel. However, Kenanga is downgrading SoP-driven TP to RM3.07 from RM3.56 to reflect lower earnings.
