GENM: Core Earnings Underperform on Higher Costs, Future Catalyst Supports ‘Trading Buy’

PublicInvest Research has maintained its ‘Trading Buy’ call on a major gaming operator, despite the company reporting a significant drop in 3QFY25 net profit and missing 9MFY25 core earnings estimates. The underperformance was primarily attributed to higher operating expenses, increased finance and tax costs, and lower unrealised foreign exchange translation gains.

Performance Review

For the third quarter of fiscal year 2025 (3QFY25), the gaming operator recorded a net profit of RM119.7 million, a substantial 79% decline year-on-year. This sharp decrease was mainly due to reduced unrealised foreign exchange translation gains on its USD borrowing, coupled with elevated finance and tax expenses.

Looking at the nine-month period (9MFY25), the company’s core profit of RM332.6 million fell below both the investment bank’s and market expectations, representing only 64% and 59% of full-year estimates, respectively. The shortfall for the nine-month period was largely driven by higher-than-expected depreciation, interest, and tax costs.

Despite the profit decline, 3QFY25 revenue saw a robust 22.1% year-on-year increase, fueled by stronger contributions from its Malaysian and US operations. Malaysia’s revenue grew 19% year-on-year, benefiting from higher business volume in the gaming segment. Operations in the US & Bahamas also posted a significant 64% jump, following the consolidation of Genting Empire Resorts after the acquisition of a remaining 51% membership interest. However, the 34.7% year-on-year drop in 3QFY25 core net profit highlights the impact of higher operating costs in the UK and increased interest expenses post-refinancing, alongside a notable rise in tax costs.

Future Outlook and Recommendation

PublicInvest Research maintains its ‘Trading Buy’ recommendation, citing a potential near-term catalyst. This optimism stems from the impending decision regarding the company’s bid for a commercial casino license in downstate New York. The announcement of this crucial decision is expected on December 1, 2025.

This date also coincides with the extended closing date for the voluntary takeover offer by Genting Bhd (GENT), which currently holds 57% of the company. An independent adviser has already recommended that shareholders reject the RM2.35 offer, deeming it “not fair” and “not reasonable.” Analysts suggest that if the acquiring entity is unable to secure sufficient acceptance, it might revise its offer price upwards, especially if the New York casino license is successfully secured. This strategic development is seen as a key factor supporting the maintained positive outlook.