PETALING JAYA: CGS-CIMB has cut Genting Malaysia Bhd’s (GenM) FY20 core earnings per share (EPS) by 43% due to the movement control order (MCO) extension.
The earnings trim also factors in an anticipated lower casino volume of 17-18% year on year (yoy) at Resorts World Genting (RWG) and fewer visitors in the second quarter of 2020 (Q2’20) because of social distancing.
“We assume a full recovery in RWG casino volumes to pre-MCO levels only in the second half, supported by tourism incentives and the opening of the outdoor theme park (OTP).
“Our forecasts include a 3% cut in staff costs to account for 15-20% salary cuts in April to June for employees in positions of assistant managers and above, partly offset by new hires for the OTP,“ the research house said in a report yesterday.
GenM has temporary closed its Malaysian, US, Bahamas and UK operations due to the pandemic.
The group’s FY21/22 core EPS forecast has been raised 3.7%/3.4% respectively for housekeeping reasons. Post revisions, CGS-CIMB sees GenM’s FY20 core EPS falling 73.4% y-o-y, then rising 200.4%/15.3% y-o-y in FY21/22.
“To be prudent, we now assume 100% payout ratio for FY20, or a dividend per share (DPS) of 6.1 sen. We see DPS reverting to 20 sen per year in FY21-22 as GenM’s earnings see a full recovery,” it said.
If the MCO is extended by a further 14 or 28 days until May 12 or May 26, its base-case FY20 RWG casino volume forecast will be reduced by 4%/7% and core EPS by 21%/43%, with lower DPS of 4.8/3.5 sen.
However, fair value will fall by only 1/2 sen given the relatively short extension duration.
“If the impact from Covid-19/social distancing is more severe than expected and RWG’s casino volumes fall by a larger 20%/25% y-o-y, our FY20 core EPS forecast will drop 22%/60%, with DPS at 4.8/2.5 sen,“ added CGS-CIMB.
The reseach house reiterated its add call on GenM, with a lower target price of RM2.80, from RM2.90 previously.
