Genting down on luck in wake of pandemic

KUALA LUMPUR (May 21): Genting Malaysia Bhd has been dealt a poor hand this year, the 55th anniversary of the founding of the group, The Edge reported today.

In 5½ decades, never has the group encountered such adversity — its casinos and hotels have had to remain shut for two months now, owing to the Covid-19 pandemic, choking cash flow and revenue.

At the same time, operating costs continue to mount.

In the financial year ended December 2019, Genting Malaysia’s total costs and expenses before finance costs amounted to a staggering RM9.1 billion.

Gaming analysts say carving out the variable costs, fixed costs amounted to some RM2 billion, which translates into an estimated RM160 million in operating fixed costs per month.

Genting Malaysia’s gearing ratio has also been increasing. From 18% in FY2016, it rose to 27% in FY2017, 35% in 2018 and 37% in 2019.

Last Thursday, www.theedgemarkets.com citing sources reported that Genting Malaysia was believed to have informed its employees that an unprecedented sizeable retrenchment exercise was needed.

“They are retrenching 10% to 20% of their [workforce], which stands at about 20,000,” a source told www.theedgemarkets.com.

Gaming analysts say retrenchments are “inevitable”, given the current tough operating conditions and the fact that “salaries make up a large [chunk] of the cost”.

The talk of job cuts comes about a month after it was reported that the Genting group was planning to institute its first group-wide salary cut since its founding.

In FY2019, Genting Malaysia’s total employee wages and benefits rose to RM2.3 billion from RM2.2 billion in 2018. According to its FY2019 annual report, the group had 20,000 employees in its payroll worldwide.

The company said in a press release last Friday that it had to make “a very difficult decision of restructuring its Malaysian operations and rightsizing its workforce”.

Given that the odds are heavily stacked against it, losses are inevitable this year.

Maybank IB Research has revised its FY2020 estimated earnings to a net loss of RM290 million from a projected net profit of RM664 million.

PublicInvest Research in a May 22 report has forecast a larger core net loss of RM393 million from a previous projected loss of RM212 million. Its sum-of-the-parts-based target price has been lowered to RM2.00 from RM2.45 previously and the stock has been downgraded to a “trading sell” from “neutral”.

Maybank IB Research, however, still holds the view that Genting Malaysia continues to be a “buy” investment thesis.

“Owing to the Covid-19 pandemic, all of GENM’s casinos have been shut since 2H March 2020. That said, we are turning more positive, as the number of new Covid-19 cases and deaths in Malaysia, New York State and the United Kingdom is easing. Thus, we anticipate GENM’s casinos will reopen soon, drawing a line under [the] current negative earnings revision trend, and refocusing investors on [the] overly discounted valuation and attractive dividend yield,” it states in a May 21 report.

Nevertheless, it has lowered its target price for the stock slightly to RM2.85 from RM2.90.

Read the full report in this week’s The Edge Malaysia

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