GEN Malaysia to cut debt gearing as EBITDA grows: Fitch

November 10, 2022 Earnings & Filings Industry Updates

Fitch Ratings Inc says it expects casino operator Genting Malaysia Bhd to deleverage to a level of 3.2 times by 2024, from 4.2 times currently, supported by a “robust recovery” in the markets where it operates, and “lower” capital spending.

The calculation was for net debt relative to earnings before interest, taxation, depreciation and amortisation (EBITDA).

Genting Malaysia operates 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 firm is part of Malaysia-based conglomerate Genting Bhd.

In a Monday report, Fitch said the expected “deleveraging” of Genting Malaysia and the parent firm would “stem from the group’s rising EBITDA and free cash flows over 2022 to 2024, as visitor volumes recover and the large capex outflows from previous years recede.”

“Following the lifting of pandemic-related restrictions [in Malaysia] in April 2022, recovery should be aided by a limited reliance on foreign visitors and additions to the new Genting SkyWorlds theme park by fourth-quarter 2022,” wrote Fitch analysts Akash Gupta and Shiv Kapoor.

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

“Genting Malaysia’s U.K. and U.S. assets also reported higher revenue in first-half 2022, amid receding pandemic risks, and we expect further improvement,” the analysts added.

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 had announced second-quarter adjusted EBITDA of MYR619.5 million, compared to MYR45.6 million in the prior-year period

According to Fitch, Genting Malaysia reported capital expenditure commitments of MYR3.05 billion as of end-2021. “We assume an average spending of MYR800 million over 2022 to 2024, driven mainly by maintenance capex and minor upgrades and additions, as most of the projects under a multi-year redevelopment plan for Resorts World Genting have been completed,” stated the ratings agency.

In September, Fitch revised its outlook on the long-term issuer default ratings of Genting Malaysia to ‘stable’, from ‘negative’. The ratings agency also affirmed the casino firm’s rating at ‘BBB’, an investment grade.

Singapore slower, steady

Fitch also gave some commentary on its expectations for Genting Singapore Ltd, the operator of the Resorts World Sentosa casino complex in Singapore, and also part of the Genting group.

“We expect a slower – but steady – EBITDAR recovery in Singapore, than in Malaysia and the U.S., due to a higher dependence on foreign visitors and the hit from an increase in gaming tax from second-quarter 2022,” wrote Mr Gupta and Mr Kapoor.

“We expect Genting Singapore’s 2022 revenues to remain 35 percent below the 2019 level,” improving to 10 percent below 2019 for 2023, and then reaching par with 2019 in 2024, they added.

Despite the reopening of its international borders, tourist arrivals to Singapore “have been affected by limited international flight capacity and pricey airfares,” added the institution.

First-half net profit at Genting Singapore fell by 4.3 percent year-on-year, to SGD84.4 million (US$61.3 million), on group-wide revenue that actually rose 19.5 percent year-on-year, to SGD663.1 million.

As at the end of 2021, Genting Singapore had reported a capex commitment of SGD3.6 billion for the expansion of Resorts World Sentosa. “We expect capex to be back-ended, and assume a spend of SGD2.0 billion over 2022 to 2024,” said the Fitch team.

Fitch’s latest report on the Genting group did “not factor in” potential new casino licences, “due to significant uncertainties”.

“We think Genting Malaysia’s subsidiary Genting New York LLC may bid for a full-scale casino licence to gain access to a deep market. The bidding process is likely to be concluded by first-half 2023,” said the analysts.

“Genting Malaysia has also bid for a licence in Macau, where six concessions are due to be renewed by end-2022,” they noted, referring to an ongoing public tender process in the latter market, that sees the Malaysian newcomer pitched against the city’s six incumbent operators.