GENTING: Earnings Below Expectations on Weak US Operations

A global conglomerate reported a flattish headline net profit for the second quarter of fiscal year 2025 (2QFY25), reaching RM243.6 million. However, excluding one-off gains from forex translation and asset disposals, core net profit stood at a significantly lower RM94 million, a sharp decline from RM446 million in 2QFY24. The first half of FY25 results notably fell short of market expectations, constituting only 27% and 30% of the investment bank’s and consensus full-year estimates, respectively. The shortfall is primarily attributed to weaker performance from its US operations.

Performance Review

Group revenue for 2QFY25 experienced a marginal 1.1% year-on-year decline. While its Malaysian operations recorded a strong 10% growth, this was offset by a 2% year-on-year decline in Singapore and a more substantial 13% year-on-year drop in its US & Bahamas leisure and hospitality segments. The revenue pressure stemmed from adverse forex translation following the strengthening of the Malaysian Ringgit against the SGD and USD, coupled with reduced visitation at Resorts World Las Vegas. The plantation division also contributed weaker revenue due to lower downstream output.

The sharp drop in core net profit to RM94.1 million was in stark contrast to the RM446 million achieved in the previous year. Resorts World Sentosa saw a 6% decline in adjusted EBITDA, impacted by higher operating costs and the temporary closure of SEA Aquarium. The US & Bahamas operations faced a significant 52% year-on-year decline in EBITDA, burdened by elevated operating and payroll-related expenses.

Outlook and Challenges

The investment bank believes that sentiments in the global leisure and entertainment industry will remain subdued given the prevailing uncertain macroeconomic conditions, particularly in the US. There is a strong likelihood of continued rising costs, including salaries, administrative overheads, and taxes, which could further pressure margins. The US economy’s potential slip into recession poses additional downside risks.

Consequently, positive earnings growth from the Singapore and US operations is not anticipated for the current year. Despite the company’s valuation appearing compelling at less than 10 times forward Price-to-Earnings (PER), potential downside risks to its earnings persist. A near-term share price catalyst could emerge from the possibility of its subsidiary, GENM, securing a full casino license in New York. The investment bank maintains its “Neutral” rating, citing weak earnings visibility.