Resorts World Genting
Resorts World Genting

Genting Malaysia, which struggled to return to profit in 1Q22, is facing a brighter future as Covid restrictions ease and Resorts World Genting ramps up operations, Hong Leong Investment Bank says.

The firm has a “buy” rating on the company and a share target price of MYR3.91. 

The company’s first-quarter results missed analysts’ expectations, mostly due to a mismatch between supply and demand, the bank said. The company was adding costs to open up the resort as demand fell due to the spread of the Omicron variant in the country.

However, looking ahead, it said there are plenty of positive catalysts for the operator.

Genting Malaysia is the country’s only casino operator, with a recently revamped resort in the Genting Highlands. Under the Genting Integrated Tourism Plan, which was launched in 2013. Genting spent MYR10.38 billion ($2.46 billion) to add more hotel rooms, expand its casino and add non-gaming attractions such as the SkyWorlds theme park, which opened in February.

This resort will “anchor” the group’s recovery for the rest of FY22, HeongLeong said.

It points to the fact that Malaysia is learning to live with Covid, while the borders are also reopening to international tourists.

The Malaysian ringgit is also currently weak, which makes the country a relatively cheaper holiday destination. 

HongLeong said as of the end of March, Resorts World Genting had only opened about half of its hotel rooms, which total 10,500. It had an occupancy rate for those that were open of 88 percent in the first quarter. 

The company is also ramping up capacity at its casino and theme park from the second quarter.

“From our ground checks, casino capacity has increased as the restriction on the number of players per table has been lifted, while the footfalls observed in the casino were also very encouraging,” the note said. “We believe visitations to RWG should improve meaningfully in 2Q22.” 

The firm expects international tourism to continue to pick up. By June 21st, Malaysia had already surpassed its target for the full year of two million incoming visitors, even though that was still only 17 percent of the pre-pandemic levels for the same period.

SkyWorlds is also rolling out more attractions and the park allows Genting to tap into a larger market.

“Prior to the opening of the theme park, the main attraction in RWG was its casino, which tends to attract, adult, non-Muslim crowds,” it said. “The opening of SkyWorlds allows RWG to attract a large and previously untapped Muslim market, which represents about 63 percent of Malaysia’s population.” 

The increased footfall from the park should have a positive spillover effect in other areas of the resort, it said. 

In 1Q22, Genting Malaysia said it had swung back to profit at the EBITDA level as revenue surged by three times following the lifting of Covid restrictions, but the results missed expectations.

The company posted an EBITDA of RM414.4 million ($94.2 million), compared with a loss on that level of RM110.4 million a year earlier. The group’s net loss narrowed by 70 percent to RM147.9 million, while revenue surged to RM1.72 billion. The results missed expectations from J.P. Morgan for EBITDA of RM450 million and were weaker than the prior quarter.