KUALA LUMPUR (March 20): Genting Malaysia Bhd (KL:GENM) is likely to remain a value trap given its weak earnings prospects, according to Phillip Capital Research.

The stock is currently trading at a low valuation of 6.1 times its estimated 2025 enterprise value (EV)/earnings before interest, tax, depreciation and amortisation (Ebitda) and 0.83 times its estimated 2025 price-to-book (P/B) ratio.

In a note, the research firm revised downwards its earnings forecasts for Genting Malaysia by 24%-28% for 2025-2027, reflecting lower Ebitda expectations and higher depreciation and interest costs.

The group’s blended Ebitda margin is now projected to be 25% for 2025-2027, down from the previously estimated 26%, according to the research firm.

It now expects Genting Malaysia to deliver annual earnings of RM597.9 million for the financial year ending Dec 31, 2025 (FY2025). It also forecasted the group’s annual earnings to reach RM729.1 million in FY2026, and RM855.7 million in FY2027.  

In FY2024, the gaming and resort operator posted an annual net profit of RM251.28 million, 42.5% lower than RM436.79 million in FY2023. 

Phillip Research said only the emergence of a major catalyst — such as securing a New York City (NYC) downstate casino licence — would change its projections.

Should Genting Malaysia win a NYC casino licence in 2025, the research house expects an Ebitda uplift of RM240 million to RM310 million in 2026, potentially adding 25 sen to 33 sen per share to its valuation.

“However, until then, margin pressure, associate losses, and rising depreciation charges are likely to cap earnings upside,” the house said.

Phillip Research said Genting Malaysia’s overseas operations are expected to face continued margin pressure, given the full-year recognition of a higher cost base.

In domestic operations, the group is poised to benefit from ongoing efforts to boost foreign visitations. Initiatives such as increased flight frequencies, visa exemptions, and a rising influx of Chinese travellers are expected to drive growth, it added.

The research house noted that Genting Malaysia’s debt burden remains high, with total borrowings at RM12.2 billion, 60% of which is denominated in US dollars.

“Interest expenses are projected to account for between 20% and 22% of adjusted Ebitda over 2025-2027, a notable increase from less than 5% during pre-pandemic levels,” it added. 

Nonetheless, the house noted that Genting Malaysia’s 5.7% dividend yield should provide some support to its share price.

Key downside risks include lower-than-expected win rates, potential gaming tax hikes, and a drag from key associates, while upside risks include favourable luck factors and increased foreign visitor spending, it noted.

Phillip Research has downgraded Genting Malaysia to 'hold', from 'buy' previously, and slashed its target price by 29% to RM1.85 from RM2.60, on weaker earnings prospects.

Shares of Genting Malaysia had risen one sen or 0.57% to RM1.77 at Thursday's midday break, giving the group a market capitalisation of RM10.03 billion.

The stock is down 21.68% this year, after lower-than-expected results and deletion from the MSCI Malaysia Index.

A majority of the research houses tracked by Bloomberg are bearish on the stock, with eight 'hold', four 'sell', and five 'buy' recommendations.

The average target price is RM2.50, suggesting a potential return of up to 41% over the next 12 months from the current price.

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