GENM: Operational Recovery Drives Strong First-Half Performance; ‘Buy’ Rating Maintained
| Investment Bank | TA SECURITIES |
|---|---|
| TP (Target Price) | RM2.24 (+13.3%) |
| Last Traded | RM1.98 |
| Recommendation |
A prominent gaming operator reported a robust performance for the first half of 2025, with its core profit of RM284.3 million falling within the investment bank’s expectations. This solid outcome was primarily attributed to a strong operational recovery in its Malaysian segments and effective cost management, which saw adjusted EBITDA expand significantly.
Performance Review
For the first half of 2025 (1H25), the core profit accounted for 66% of the investment bank’s full-year forecast and 57% of consensus estimates. While these figures were considered within expectations due to anticipated increases in operating costs in the second half of 2025, the underlying performance showed strength. Adjusted EBITDA surged by 24% year-on-year to RM1.8 billion, despite only a modest 1.5% growth in revenue. This growth was largely propelled by a strong rebound in Malaysian operations, successfully offsetting higher payroll expenses in its US and UK ventures.
On a quarter-on-quarter basis, the second quarter of 2025 (2Q25) saw a remarkable more than five-fold surge in core profit to RM237.4 million, underpinned by a 12.5% increase in revenue. This impressive quarterly performance was partly due to a low-base effect from the first quarter of 2025, which had been impacted by lower VIP volume and a high effective tax rate.
Challenges and Future Outlook
Despite the strong first-half results, management exercised prudence, opting not to declare an interim dividend for 1H25. This decision was influenced by prevailing cost pressures anticipated in 2H25, including the impact of the Sales and Service Tax (SST), rising electricity costs, and increased marketing expenses. As a result, the FY25 EBITDA margin is expected to moderate to around 30% from 33% in 1H25.
The investment bank has maintained its earnings projections for FY25-27. However, dividend projections have been revised downwards for FY25, FY26, and FY27, from an earlier 12/14/16 sen/share to 8/10/12 sen/share, respectively. On the corporate front, the company anticipates completing the disposal of Resorts World Catskills’ non-gaming assets this year. Furthermore, the group submitted a bid for a new casino license in downstate New York in June, with winners expected to be announced by December 1.
Valuation and Recommendation
TA Securities maintains its ‘Buy’ recommendation, with the target price (TP) held steady at RM2.24 per share. This valuation is based on a Discounted Cash Flow (DCF) model, reflecting a potential upside of 13.3% from the last traded price of RM1.98.
