Genting Malaysia Earnings Preview:Tourism Boost but Short-Term Earnings Hit from Casino Closures

Genting Malaysia is expected to release its FY24Q1 financial report on May 24th. Analysts believe the recovery of regional tourism will boost Genting Malaysia's revenue; however, the temporary closure of two casinos is expected to impact earnings in the short term.

According to the analyst rating feature on moomoo, there have been ratings from 14 analysts, of which 64% have given a 'Buy' rating, and 29% have given a 'Hold' rating.

In a stock exchange filing in March, Genting Malaysia maintained a cautious stance regarding the short-term outlook for the leisure and hospitality industry, yet held a positive view for its long-term prospects. The anticipated growth in regional tourism and domestic private consumption in Malaysia supports the group's strategy to increase visitation and customer spending at Resorts World Genting (RWG). Malaysia's first-quarter economic performance underscores the rise in domestic consumption. The economy grew faster than expected in Q1 2024, with GDP rising by 4.2% year-on-year, driven mainly by domestic demand.

Analysts also believe that the recovery of regional tourism is a major driving force. Hong Leong Investment Bank (HLIB) sees potential recovery for Genting Malaysia, identifying the sustained rebound in Malaysian tourist numbers as a key investment theme for 2024. The recent visa-free travel agreement between China and Malaysia is expected to boost Genting's FY24 earnings. Additionally, Genting's well-established operations help mitigate regulatory and country risks.

Maybank analyst Samuel Yin Shao Yang stated that with the increase in international tourists, this year's visitor numbers are expected to recover to 24 million from last year's 21 million. Despite the service tax increase to 8% from 6% effective March 1, 2024, Genting Malaysia's FY24 earnings are projected to recover by 60% year-on-year.

"While Malaysian and Singaporean visitation (around 85% of total visitation pre-COVID) has recovered to pre-COVID levels, Indonesian (around 10% during pre-COVID) and Chinese visitations (around 4% during pre-COVID) have not," Yin wrote. "We are hopeful that air connectivity from the latter two source markets will be fully restored this year. It also helps that Malaysia recently granted 30-days visa-free entry to Chinese visitors." he added.

The Circus Palace and Hollywood mass gaming floors were shut for renovations on February 28. Yin noted that mass market GGR is likely to "take a backseat" in 2024 while these renovations are underway.

However, he predicts earnings will rebound from 2025 onwards, assuming both gaming floors are reopened by the end of the year to capitalize on the holiday season.

In January, Genting Malaysia invested $100 million to acquire additional shares in the U.S. casino operator Empire Resorts, increasing its ownership stake to 90%. This U.S.-based company operates various gaming businesses, including mobile sports betting in New York State. Genting Malaysia stated,“The equity Injection will also allow Genting Malaysia to reinforce its position and grow its market presence in the expanding New York State gaming market to compete effectively in the northeastern US region.”

Meanwhile, Genting Malaysia is a strong contender for one of the three new casino licenses in the New York City (NYC) area, which may be awarded by the end of next year. Securing this casino license would serve as a significant catalyst for Genting Malaysia.

"As an existing gaming facility, with a recent US$400 million expansion, this puts Resorts World New York City in a strong position as it will be able to swiftly kick-start 'live' table games and generate tax income and jobs for the state," said analysts. They emphasized that Genting Malaysia stood to increase its revenue if it secured one of the NYC casino licenses.