CGS International has cut its FY24F/25F/26F core EPS estimates for Genting Malaysia by 31.5%/25.3%/13.6% mainly due to higher tax rate assumptions noting the group has fully utilised its tax incentives from the Genting Integrated Tourism Plan.

The house has also increased the operating costs of RWG to take into account the higher service tax of 8% incurred by its gaming operations since 1 Mar 2024. Despite lowering earnings estimates, CGS still expects GENM to post a strong 3-year EPS CAGR of 42% in FY23-26F, driven by Resorts World Genting (RWG). CGS sees RWG's revenue growing by 10.5%/9.7%/5.2% in
FY24F/FY25F/FY26F, with a recovery in total visitors to RWG helping to drive business volume and EBITDA growth.

Foreign and domestic tourists to lift RWG revenue past all time high
Data from Tourism Malaysia indicated that total tourist arrivals in Malaysia in 1H24 rose 29% yoy, with Chinese tourist arrivals in the same period almost triple of 1H23 and Jun 24 arrivals surpassing the corresponding 2019 period for the first time since the pandemic.

According to China's National Immigration Administration, 7.59m entries and exits of mainland Chinese travellers were recorded during China's National Day holidays (1-7 Oct 2024), up 33.2% yoy. This comes as China's international airline capacity (number of seats) to Malaysia has exceeded pre-pandemic levels since Jun 24 according to available Official Airline Guide (OAG) data and is expected by end-2024 to continue increasing. Further, the Department of Statistics Malaysia (DOSM) reported that Malaysia's domestic tourism sector saw 127m visitors in 1H24, up 21.5% yoy, with domestic tourism
expenditure up 27% yoy to RM52bn. We believe that domestic and foreign tourist arrivals and spending would only get stronger heading into 2H24F, which should drive business volumes and lift RWG's revenue past FY19's all-time high.

Retain Add with a lower SOP-based TP of RM3.65
CGS retains its Add call on GENM, as it expects a robust 3-year EPS CAGR of 42% in FY23-26F, supported by the recovery in tourism and growth in RWG's revenue. The house lowers its SOP-based TP to RM3.65 following earnings adjustments and rolling forward the base year to FY25F. GENM is currently trading at 13.4x CY25F P/E, 1 s.d. below its historical pre-Covid-19 mean P/E of 18x. Key re-rating catalysts are stronger-than expected Malaysian operations and operating margins. Downside risks are higher-than expected operating costs and slower Malaysia gaming revenue recovery.