GENM: Earnings Beat Expectations on Cost Efficiencies and Revenue Growth

Genting Malaysia Bhd (GENM) reported a significant financial rebound in the second quarter of fiscal year 2025 (2QFY25), with net profit soaring to RM416.7 million, a substantial increase from RM82.2 million in the corresponding period of 2QFY24. Excluding exceptional items, the core net profit stood at RM186.5 million, marking a robust 128% year-on-year growth. This impressive performance was primarily driven by higher gaming revenue across its Malaysian and UK operations, complemented by substantial foreign exchange translation gains totaling RM184.6 million on its USD-denominated borrowings. Despite the strong quarterly showing, cumulative first-half fiscal year 2025 (1HFY25) results remained below both Public Investment Bank’s and consensus full-year estimates, accounting for only 40% of projections.

Performance Review

Revenue for 2QFY25 rose 9.3% year-on-year, propelled by a 10% increase in business volume from the Malaysian gaming segment and a 9% rise in UK revenue, boosted by contributions from the newly acquired Stratford casino. Conversely, revenue from the US operations, while also showing a 9% increase year-on-year, was affected by the consolidation of Empire Resorts and higher operating expenses. The strong net profit growth was largely attributable to the combined effect of elevated gaming revenue and the significant foreign exchange gains.

Strategic Initiatives and Future Outlook

The company’s profitability is poised for further improvement with the anticipated completion of the proposed disposal of Empire Resorts’ non-gaming assets later this year. This strategic move is expected to enhance GENM’s cost structure by reducing interest payments on borrowings and lease payments for land. Furthermore, the company is set to receive recurring payments for the management of these non-gaming assets and the land it intends to acquire. However, the acquisition of these assets by Sullivan County Resort Facilities Local Development Corp has faced a delay due to a postponed municipal bond offering, which was intended to fund the purchase. Looking ahead, the operating environment in the US market is expected to remain challenging amidst a weak economic outlook and the potential for a recession, which could negatively impact consumer sentiment and discretionary spending on entertainment.

Public Investment Bank has maintained its “Neutral” recommendation on Genting Malaysia and reiterated its 12-month target price of RM1.84. This stance remains until the proposed disposal of Empire Resorts’ non-gaming assets is finalized, which is expected to bolster the company’s profitability through reduced costs. No dividend was declared for the quarter.