Genting Berhad: A Gamble on Recovery?

Genting Berhad's recent financial results have been stark. In Q1 2025, revenue dropped 12% year-on-year to RM6.51 billion, while net profit collapsed 99% to RM4.57 million. These figures, coupled with a paltry EPS of RM0.0012 and the suspension of dividends, paint a picture of a company under pressure. Yet beneath the surface, valuation metrics suggest a potential undervaluation that could reward patient investors. The question is: Are the operational headwinds temporary, and can near-term catalysts reignite growth?

Valuation: A Bargain or a Mirage?
Genting's current valuation metrics are compelling. Its EV/EBITDA ratio stands at 2.43, a historic low, suggesting the market is pricing in prolonged weakness. Meanwhile, the trailing P/E of 11.63 falls below the sector average of 14.1x, implying the stock is undervalued relative to peers. Analyst models point to a fair value of MYR11.85, nearly double the current share price of MYR5.30, with upside potential of 125%.

However, risks loom large. A debt pile of MYR40.19 billion and an Altman Z-Score of 1.16 (signaling heightened bankruptcy risk) underscore financial fragility. The payout ratio of 193% further raises concerns about dividend sustainability. These factors temper optimism, but they also highlight why the market has already discounted much of the bad news.

Catalysts to Watch
1. EPCIC Contract Activation (China): The China-Malaysia joint venture EPCIC, which operates casinos in China, is Genting's crown jewel. With Chinese tourism rebounding strongly—reaching pre-pandemic levels in early 2025—the delayed activation of EPCIC's gaming licenses could unlock a revenue boost. Analysts estimate this could add RM1.5–2 billion in annual revenue once operational.

1. Tourism Recovery: Genting's resorts, including Resorts World Sentosa and Resorts World Genting, rely heavily on international visitors. While domestic demand has stabilized, the return of Chinese tourists—accounting for 20% of pre-pandemic visitation—could be a game-changer. Singapore's tourism receipts rose 47% year-on-year in Q1 2025, a positive sign for Genting's regional operations.

2. Cost Discipline: Management has emphasized cutting non-essential spending. If operational efficiency improves, margins could rebound. The company's 0.1% profit margin in Q1 2025 is unsustainable, but a return to mid-single-digit margins (historically achievable) would significantly lift net income.

Investment Thesis
Genting's valuation presents a classic “value trap” dilemma. The stock's low multiple reflects justified concerns about debt and execution risks. Yet, if the EPCIC contract comes online and tourism rebounds fully, the upside is material. Analysts at Citi and CLSA have maintained “Buy” ratings, with price targets of MYR5.55–6.00, while models suggest a MYR11.85 fair value.

Conclusion
Genting Berhad is a high-risk, high-reward bet. Its valuation offers a compelling entry point for investors willing to bet on a recovery in Asian tourism and the eventual payoff of the EPCIC project. However, the path is fraught with obstacles: debt deleveraging, margin pressures, and regulatory hurdles in China. For conservative investors, wait-and-see might be prudent. For those with a higher risk tolerance, Genting's current valuation—particularly its EV/EBITDA of 2.43, which is half the sector average—could offer asymmetric upside. Monitor the stock closely, and consider a position if the share price dips further below MYR5, with strict stop-loss parameters.

In the words of legendary investor Benjamin Graham: “In the short run, the market is a voting machine; in the long run, it's a weighing machine.” Genting's long-term prospects hinge on whether its assets can regain their pre-pandemic weight. The jury is still out, but the scales are tilted toward undervaluation.