Rising vaccination rates in key markets, a strong rebound in the Unites States and reduced capital expenditure will drive strong recovery for Genting Berhad over the next two years, helping the company deleverage to below 3x by end-2023 according to Fitch Ratings.
While risks still remain around future border closures due to the COVID-19 pandemic, Fitch analysts said in a Friday note that confidence is high around Genting’s prospects following the recent lifting of restrictions in Malaysia and Singapore.
The reopening of Resorts World Genting last week after a four-month closure is expected to see business volumes pick up rapidly, mirroring a previous reopening in August and September 2020 that saw GGR reach 80% of pre-COVID levels and hotel occupancy around 90%.
“We assume that a limit on 50% of the resort’s capacity will remain in place at least until 1Q22, but we expect a gradual relaxation of restrictions once COVID-19 is deemed endemic,” Fitch said. “This expectation is in line with decisions made by other countries, such as the US and UK, to remove capacity limits.
“Fitch expects GENM’s EBITDA margin to recover to pre-pandemic levels in 2022, although visitor volumes may not recover fully until 2023-2024.”
In the United States, Fitch said operations will normalize in the coming months after enjoying strong pent-up demand, with Genting’s recently opened US flagship, Resorts World Las Vegas (RWLV), to slowly build to fully-ramped EBITDA of US$350 million by the end of 2024.
“Nonetheless, RWLV will become increasingly important for Genting as its EBITDA grows, as the resort is the group’s flagship asset in the US,” the analysts said. “Fitch expects RWLV to contribute the same EBITDA as Genting Malaysia on a proportionate basis (factoring in Genting’s 49% share in Genting Malaysia) once it is fully ramped-up in 2024. RWLV’s growing contribution will also help Genting’s EBITDA to recover to pre- pandemic levels and deleverage to below 3x by end-2023.”
Recovery in Singapore, home to Genting Singapore’s Resorts World Sentosa, will be somewhat slower, with revenue rising from 43% of 2019 levels this year to around 50% in 2022 but fully recovering by 2023.
Fitch has maintained a “BBB” rating for Genting Berhad, stating, “Our expectations for deleveraging are supported by gradual recovery in Malaysia and Singapore, swift recovery in Genting’s US markets, combined with lower capex from 2022. All of Genting’s key operating markets have high vaccination rates, which suggests a return to strict lockdowns is unlikely and therefore supports our recovery estimates for the issuer.
“Fitch believes the next six to nine months are critical and should provide better visibility on the sector’s recovery. During this period, we expect governments to provide clearer indications of their border and travel policies, which are key to determine if casinos and tourism can gradually return to normal, or if visitor volumes are unlikely to return to pre-pandemic levels.
“The transition towards living with Covid-19 in Singapore and Malaysia and handling of movement controls or border closures are key risks to our recovery expectations. Prolonged curbs will mean structural challenges for operators to achieve pre-pandemic visitor levels.”
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