GENTING: Investment Bank Maintains Neutral Stance Amidst Earnings Miss and Cost Pressures

Performance Overview

PublicInvest Research has maintained its “Neutral” rating on Genting Bhd, revising its target price to RM3.30. This stance follows Genting’s recent financial performance, which saw its 3QFY25 headline net profit decline significantly by 86.5% year-on-year to RM30.3 million. This substantial drop was primarily attributed to lower unrealised foreign exchange translation gains from its USD-denominated borrowings. The nine-month core profit for FY25 also fell short of PublicInvest’s expectations, reaching RM551 million, approximately 50% of its full-year estimates. This miss was largely due to higher-than-anticipated financing costs and an elevated effective tax rate. Consequently, PublicInvest has revised its FY25-27F earnings forecasts downwards by an average of 36%, reflecting these increased cost assumptions.

Revenue Growth Amidst Profit Decline

Despite the profit decline, the group’s revenue showed resilience, rising 14.3% year-on-year in 3QFY25. This growth was driven by robust performance across key segments. Resorts World Sentosa (RWS) saw a 13% year-on-year revenue increase, propelled by improved VIP rolling volume and a higher win rate, complemented by an uptick in non-gaming revenue. Similarly, Resorts World Genting (RWG) reported a 19% jump in revenue, attributed to increased business volume in its gaming segment. The US & Bahamas operations also posted a 20% year-on-year revenue increase following the consolidation of Genting Empire Resorts. However, revenue growth in the UK & Egypt was a more modest 2%, impacted by the strengthening of the ringgit against the British Pound. The leisure and hospitality segment remained the primary revenue driver, contributing 83% of the group’s total.

The core net profit for 3QFY25, however, was down 62% year-on-year, significantly impacted by higher financing costs and an effective tax rate of 47%. The elevated tax expense stemmed from increased Malaysian income tax charges and deferred tax charges, partly because losses from certain subsidiaries could not be offset for tax deduction purposes.

Financial Headwinds and Outlook

PublicInvest highlighted several ongoing challenges that could pose downside risks to future earnings. These include a potential slowdown in global economic activities, which could adversely affect the hospitality and entertainment industry. Furthermore, rising operational costs, particularly salaries, administrative expenses, and tax, are expected to persist. The stronger ringgit, coupled with a declining job market and consumer confidence in the US and UK, could lead to lower gaming revenue. Looking ahead, while Genting’s current valuation appears compelling, the bank notes potential downside risks. However, a significant near-term catalyst could emerge from the potential award of a full casino license in New York to Genting Malaysia, which could positively impact Genting Berhad.