Genting Bhd (GENT) lost its long-held AAA rating at the height of the pandemic, being reduced to AA1/negative before stabilising at AA1/stable in Sep 2022 following relaxation of travel curbs.
Maybank Investment Bank (Maybank IB), in a note today, said credit metrics have since improved meaningfully, supported by higher revenue and profitability, and reduced capex.
One of two RAM financial upside triggers has been met, raising hope for a positive outlook. A key risk to rating upside is large new investments that could strain its credit profile.
Earnings Growth Visibility
Genting Bhd's full-year 2023 revenue reached MYR27.1b and EBITDA MYR8.8b, surpassing pre-pandemic levels at 125% and 112% of 2019 figures, driven by recovery in the leisure and hospitality sectors and a ramp-up in Resorts World Las Vegas (RWLV).
Growth momentum sustained in 1Q24 with revenue and EBITDA up 36% and 40% YoY to MYR7.4b and MYR2.6b, respectively, fuelled by a surge in Chinese visitors to Resorts World Sentosa (RWS) post-tourist visa waiver in Feb 2024.
Maybank IB's gaming analyst expects Resorts World Genting (RWG) visitors to return to 2019's peak of 24m, and RWS mass-market gross gaming revenue to exceed the 2019 level by 20%, supporting EBITDA growth of 9% in 2024 and 5% in 2025.
One of Two RAM Financial Upside Triggers Is Met
GENT's cash balance rose to MYR24.3b (2022: MYR22b). Net debt was trimmed to MYR15.5b at end-Mar 2024, down from a peak of MYR17.3b in 2021.
Consequently, the FFO to net debt cover ratio rose to 0.17x in 1Q24, or 0.7x on annualised basis (2023: 0.54x), and net gearing decreased to 0.27x (2022: 0.32x).
GENT has met one of RAM's upside triggers (net FFODC >0.45x) and is not far from the <0.25x trigger for net gearing.
The gaming analyst projects GENT's net gearing will decline to 0.24x by year-end, though not without risks from potential expansion plans: 1) RWS expansion is required by Singapore government, announced in Nov 2023 with an increased budget of SGD6.8b from the previously indicated SGD4.5b over an 8-year period, 2) Resorts World New York City's (RWNYC) bid for a full casino license, though is on hold until at least 2025.
GENT is currently rated AA1/stable by RAM. The ratings of Genting Malaysia Bhd (GENM), which owns RWG and gaming operations in the US and UK, reflect those of its parent due to their strong relationship and the expectation of parental support when necessary.
Therefore, any changes in GENT's rating will similarly impact GENM's rating. The Ringgit bonds of GENT and GENM tend to trade 40-60bp wider than the composite AA1/AA+ curve in mid-tenors (3-7y), due to larger yield premiums applied to the gaming sector and smaller investor base.
The 5- 10y bonds of GENT and GENM may still yield around 4.5-5.0%, though only investable by institutional investors with a less restrictive conventional mandate and retail demand. Secondary trade volumes for GENT and GENM totaled about MYR0.8b in 1H24, >85% of which was standard size.
This translates to an annualised turnover ratio of 18% based on the current MYR9.05b total outstanding, or a slightly higher ratio if calculations exclude the MYR1.7b new bonds issued in May-Jun 2024 from the outstanding, comparable with average PDS liquidity, the investment bank said.