GEN Malaysia stable outlook on robust recovery, says Fitch

Sep 26, 2022 Newsdesk Latest News, Rest of Asia, Top of the deck  

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Fitch Ratings Inc has revised its outlook on the long-term issuer default ratings of casino operator Genting Malaysia Bhd to ‘stable’, from ‘negative’. The ratings agency has also affirmed Genting Malaysia’s rating at ‘BBB’, an investment grade, according to a report published on Friday.

In the note, Fitch said stable outlook was driven by Genting Malaysia’s “robust gaming-revenue recovery, as evident in its second quarter 2022 results, in the key markets of Malaysia and the United States”.

“This follows receding Covid-19 pandemic-related risks and the easing of movement restrictions. We estimate that Genting Malaysia’s proportionately consolidated net leverage ratio is on track to fall below 3.5 times by 2024, which is consistent with its rating,” added the institution.

In August, Genting Malaysia said its second-quarter revenue rose by 166.0 percent year-on-year, to nearly MYR2.18 billion (US$474.8 million). The group reported second-quarter adjusted earnings before interest, taxation, depreciation and amortisation (EBITDA) of MYR619.5 million, compared to adjusted EBITDA of MYR45.6 million in the prior-year period

Genting Malaysia operates casino complex Resorts World Genting (pictured in a file photo), Malaysia’s only licensed casino property. The group also runs casinos in the United States and in the Bahamas, the United Kingdom, and Egypt.

In Friday’s report, Fitch said Genting Malaysia’s credit profile was “supported by its position as the sole casino-licence holder in Malaysia, where it benefits from a high share of domestic visitors”.

It added: “Its rating also incorporates robust diversification in terms of gaming assets in the U.S. and the UK as well as significant non-gaming revenue from hotels, theme parks and other facilities.”

The ratings agency said additionally that it expected revenue from Malaysia, which formed almost 70 percent of the pre-pandemic consolidated total, “to recover to over 75 percent of 2019 levels in 2022 and to around 95 percent in 2023”.

“The recovery should be aided by a limited reliance on foreign visitors and additions to the new Genting SkyWorlds theme park by the fourth quarter of 2022. The U.K. and U.S. operations also reported higher revenue in first-half 2022 amid receding pandemic risks and we expect further improvement,” stated Fitch.

According to the institution, the casino operator’s first-half 2022 margin “benefitted from a 35 percent cut in Malaysia’s workforce to mitigate the impact of the pandemic”.

“Genting Malaysia does not expect the headcount to return to pre-pandemic levels, despite plans to hire additional staff over the next year. We think better operational efficiency and the company’s plan to improve yields will enable its EBITDAR margin to remain above the 2019 level,” noted Fitch.

The ratings agency also forecast positive consolidated free cash flow through to 2024, “following large outflows in the last few years”.

“In addition to higher EBITDAR, Genting Malaysia should benefit from lower capex, as most of the projects under a multi-year redevelopment plan for Resorts World Genting have been completed,” it added.

A unit of Genting Malaysia has submitted a proposal for Macau’s fresh 10-year gaming rights under the city’s related public tender. While industry analysts do not expect the group to win “an outright” Macau concession, if that were to happen it could “cloud” the group’s post-pandemic recovery, said S&P Global Ratings Inc in a recent note.

In Friday’s report, Fitch said it had “not factored any licence wins” in Macau in its estimates on Genting Malaysia, “given the uncertainty”.

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