GGRAsia – GEN Malaysia stable outlook, rebound taking its time: Fitch

GEN Malaysia stable outlook, rebound taking its time: Fitch

Sep 21, 2023 Newsdesk Latest News, Rest of Asia, Top of the deck

Fitch Ratings Inc has affirmed the long-term issuer default rating of casino operator Genting Malaysia Bhd at ‘BBB’, an investment grade, according to a memo published on Wednesday. The ratings agency said the company’s outlook remained ‘stable’.

The institution however said it has revised Genting Malaysia’s standalone credit profile (SCP) down to ‘BBB-’, from ‘BBB’. It also said it has placed the ‘BBB-’ rating of Genting Malaysia’s wholly owned subsidiary, Genting New York LLC, on “rating watch negative”.

Genting Malaysia’s rating is “equalised with its 49-percent stronger parent,” Malaysian conglomerate Genting Bhd, based on Fitch’s “assessment of the parent’s high incentives to support Genting Malaysia”.

The downward revision in Genting Malaysia’s SCP was driven by Fitch’s estimate that the casino firm’s earnings before interest, taxation, depreciation, amortisation and rent (EBITDAR) net leverage ratio, including Empire Resorts Inc, “will remain above 3.5 times until 2025”.

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.

The company additionally has links to Empire Resorts, which runs the full-service casino Resorts World Catskills, in upstate New York.

“Genting Malaysia’s revenue rebound has been slower than our expectations, and the impact on leverage has been compounded by Empire’s weak metrics,” wrote Fitch analysts Akash Gupta, Shiv Kapoor and Hasira De Silva.

“Still, we see limited impact on parent Genting Bhd proportionately consolidated leverage metrics, due to significantly higher cash flow diversification than Genting Malaysia,” they added.

Genting Malaysia swung to a second-quarter profit of MYR47.1 million (US$10.1 million), on revenue that rose 13.7 percent year-on-year, to MYR2.47 billion. The result took first half revenue to just under MYR4.76 billion, a 22.1-percent improvement on the same period in 2022.

“Revenue in 2022 and first-half 2023 in Malaysia, which contributes over 60 percent of Genting Malaysia’s consolidated figure, was lower than our expectations, affected by factors such as heavy rainfall at the turn of 2023 and a landslide in late 2022, hindering access to the resort,” said the Fitch analysts.

They cut their revenue expectations for Genting Malaysia “to around 90 percent to 95 percent of the 2019 level in 2023 and 2024”.

“Revenue growth should be driven by a steady increase in domestic traffic and higher [number of] international tourists, supported by the likely repair of the access road by first half of 2024,” stated the analysts.

They added: “We expect flattish revenue in the U.S. In the U.K, where Genting Malaysia is facing weak domestic demand and cost pressures, we forecast revenue to decline in 2023 before recovering in 2024.”

Fitch also observed that Genting New York “intends to bid for one of three full-scale downstate New York casino licences that are likely to be awarded by first-half 2024”. Currently Genting New York runs an electronic gaming venue in the state.

The “rating watch negative” on Genting New York’s ratings “incorporates the risk that it may not win a full-scale casino licence in downstate New York,” said the ratings agency.

“In that case, we think Genting New York’s strategic importance to the Genting group and incentives for Genting Bhd to provide support are likely to be weaker,” which could lead to Genting New York’s rating “being downgraded by more than one notch,” it added.