PETALING JAYA: Genting Malaysia Bhd
(GenM) has a few positive things going on that will make financial year 2023 (FY23) exciting for the gaming and resort operator.
They include the reopening of the remaining hotel room inventory in Resorts World Genting (RWG) in Genting Highlands, SkyWorld ride capacity increase and extended operating hours as well as a seasonally stronger Chinese New Year period.
In addition, there will also be favourable developments in the United States, with the opening of Resorts World Hudson Valley (RWHV) this month and Super Bowl in February 2023, which augured well for its subsidiary Empire Resorts Inc’s mobile sports betting.
Amid the positive outlook, Hong Leong Investment Bank (HLIB) Research maintained its “buy” call on GenM, with an unchanged target price of RM3.44 based on sum-of-parts valuation.
The brokerage noted that the current weakness in GenM’s share price was an indication that the market had priced in the company’s weaker-than-expected set of results for the third quarter (3Q) ended Sept 30, 2022.
“We believe the current weakness in share price of GenM is pricing in the 3Q22 results shortfall. We anticipate that footfall to RWG may be weak in 4Q22 due to the month-long World Cup 2022,” it wrote in its report yesterday.
“Looking ahead, we believe the group will see a much better FY23 due to the reopening of the 21% remaining hotel room inventory in RWG and SkyWorld capacity increase with two additional rides to bring a total of 20 rides,” it added.
HLIB favoured GenM as RWG is believed to be one of the prime beneficiaries of borders reopening and recovery in tourism.
“Under the new administration, the tourism segment may benefit as the government capitalises on the sector as a lever to support the domestic currency and economy.
“We believe that visitations to RWG have the potential to scale beyond pre-pandemic level given the capacity increase and the more diverse crowd it attracts due to the addition of its theme park,” HLIB explained.
HLIB noted that when GenM first announced its acquisition of loss-making Empire in 2019, the company’s share price tumbled 11.9% a day after the announcement.
“However, on hindsight, we are now starting to appreciate the value behind the acquisition. Despite the Covid-19 pandemic, Empire’s operational performance had improved with gross gambling revenue, or GGR, exceeding pre-pandemic levels for most of the months since May 2021.
“The opening of RWHV is expected to contribute positively to Empire’s earnings in the coming quarters given that it’s a low capital expenditure venture resulting in only marginal incremental depreciation expense post opening,” it said.
