KUALA LUMPUR (April 14): Hong Leong Investment Bank Research (HLIB Research) has "turned positive on the long-term prospects of Genting Malaysia Bhd (GenM)" as it believes that the group is "expected to see exponential year-on-year (y-o-y) profit growth in FY22".

The local research house has upgraded its call to a "buy" from "hold" and raised its target price for the stock to RM3.55 from RM2.67.

In its report today, HLIB Research noted its expectation for FY21's performance to be weaker than expected as the interstate travel ban for populous areas like the Klang Valley, Johor and Penang are still in place.

Nevertheless, it asserted its belief that investors would start to look beyond FY21 due to the timeline of vaccine roll-outs and lower trend of Covid-19 cases.

"We opine that SkyWorlds theme park would also be a catalyst for GenM's recovery in FY22," it added in a report today, sharing its estimates of a potential capital upside of 16.9% and an expected 5.3% dividend yield, giving the stock an expected total return of 22.2%.

"We expect a significant y-o-y recovery for GenM in FY22 due to the timeline of vaccine roll-outs and we are confident that Malaysia will achieve some form of normalcy in FY22. We believe that the public's willingness to travel would be positively correlated with the vaccination rates in the country," HLIB Research added.

Meanwhile, CGS-CIMB Research has also issued a report on GenM today, maintaining its "hold" call and target price of RM3.20 for the stock.

In its report today, CGS-CIMB focused on GenM's US operations, where the research house expected there could be significant developments in the next one to two years that pose upside/downside risks to the group's share price.

It said GenM could potentially write back the Mashpee Wampanoag promissory notes (RM1.8 billion, 32 sen/share), if the Tribe resumes its First Light Resort & Casino project.

"Prospects of this have improved as Deb Haaland, a Native American, was confirmed as Secretary of the US Department of Interior (DOI) on March 15, 2021. She had previously lent support to the Tribe in its fight to preserve its land-in-trust status. However, it is unclear when and how long it will take the DOI to re-examine/overturn its previous decision, while the Tribe may also have to raise fresh funding for the project," CGS-CIMB Research noted.

It added that GenM's wholly-owned Resorts World New York City (RWNYC) may win one of up to three downstate casino licences that the New York state may issue when a moratorium expires in 2023.

"If so, this would convert its current video lottery terminal facility into a full-scale casino. This proposal is supported by some lawmakers as it would help the state generate extra gaming taxes almost immediately (vs a new casino, which may take at least three years to complete). In this scenario, Spectrum Gaming Group (industry consultant) projects RWNYC's gross gaming revenue in Year 1 (possibly FY23F) may be 66% higher vs FY19, and still 49% higher in Year 4 when a third casino opens. We estimate RWNYC may make additional net profit of RM266 million in FY26F, enhancing GenM's equity fair value by 42-50 sen/share," CGS-CIMB Research noted.

It added that key downside risk to GenM's US operations includes further equity injection into loss-making Empire Resorts in which thus far GenM has invested RM1.47 billion (26 sen/GenM share), resulting in an effective 58% stake.

At the time of writing, GenM was unchanged at RM3.04 with 2.9 million shares done.

At the current price, the stock is up 46% from its close of RM2.02 a year ago.