Exploring Gengting: What It Does and Its Investment Potential

Genting Bhd is a diversified holdings company primarily operating in the resorts and casinos industry. Its main business segment is Leisure & Hospitality, which includes resorts worldwide featuring casinos, theme parks, concerts, restaurants, and retail shopping. Besides its core segment, Genting Bhd has smaller segments in Plantation, Power, Property, and Oil & Gas, managing farmland, oil and gas operations, and real estate. The majority of the company's revenue comes from Malaysia and Singapore.

According to the latest financial report, Genting recorded a revenue of RM7.43 billion in Q1 2024, representing a year-on-year increase of 27.6%. The net profit was approximately RM1 billion, a significant increase compared to RM290 million in Q1 2023.The total revenue from the largest contributing business, the Leisure & Hospitality Division, accounted for most of the revenue growth, amounting to RM6,480.8 million. This included gaming revenue of RM4,231.9 million and non-gaming revenue of RM2,248.9 million.

The Group’s adjusted earnings before interest, tax, depreciation and amortisation (“EBITDA”) for the current quarter was RM2,574.0 million, an increase of 40% compared with RM1,833.8 million in the previous year’s corresponding quarter.

1.L&HIn the current quarter, Resorts World Sentosa (RWS) and Resorts World Genting (RWG) both recorded higher revenue and adjusted EBITDA, with RWS benefiting from increased visitorship during the Chinese New Year and relaxed visa regulations between China and Singapore, and RWG driven by higher business volume in gaming and non-gaming segments.Similarly, the leisure and hospitality businesses in the UK, Egypt, US, and Bahamas saw increased revenue due to higher business volumes and improved operating performance, particularly at Resorts World New York City (RWNYC) and Resorts World Bimini (RW Bimini)

.2.Plantation DivisionRevenue and adjusted EBITDA for the Oil Palm Plantation segment were higher due to increased palm product prices, which compensated for lower sales volume from the Downstream Manufacturing segment. The latter recorded a lower adjusted EBITDA due to decreased sales volume and margin deterioration.

3.Power DivisionRevenue and adjusted EBITDA decreased primarily due to lower generation from the Banten Plant in Indonesia, following its first major scheduled maintenance since commercialisation in 2017. The maintenance began in December 2023 and concluded in February 2024.

4.Oil & Gas DivisionHigher revenue was recorded due to a strengthening USD and stronger global crude oil prices. However, adjusted EBITDA was lower, mainly due to increased operating costs.

5.Investments & OthersA higher loss before interest, tax, depreciation, and amortisation was mainly due to higher net unrealised foreign exchange translation losses recorded by the GENM Group on its USD-denominated borrowings in the current quarter.

In Q1 2024, the company's EPS reached 0.15 MYR, the highest in two years, indicating strong earnings recovery.We project GENT's leisure business to recover gradually in 2024-2025, with the UK gaining prominence as it shifts from the high-roller to the mass market.

This shift should also help maintain casino margins due to lower potential debt impairments in the mass market. With the stable recovery of Asia-Pacific tourism, GENT's gaming volume is expected to improve over the next 12 months.Additionally, for the plantation sector, we believe the department should experience a stronger year with the recovery of production levels.

Overall, with the recovery of core businesses and improved profit margins, we forecast an EPS of 0.44 MYR per share for 2024.

The company's current TTM P/E ratio is 12.98x, which is reasonably priced. Since the beginning of 2024, the company's stock has risen by 5.61%, lagging behind the Malaysian index's 11.05% gain, indicating that the market has not fully priced in its expectations.

The company's current TTM dividend yield is 3.13%, lower than the yield on Malaysian government bonds. Historically, the company has maintained relatively stable dividends, with the most recent payout on February 29, 2024, at 0.09 MYR per share.

In summary, after the turbulence of a few years, Genting is now on a path of rapid business recovery. Coupled with a reasonable valuation range and relatively stable shareholder returns, its future investment value has a solid fundamental basis. Investors should focus on the performance and market improvements of its largest segment, Tourism and Leisure, which underpin the company's future growth.