Fitch Ratings has issued an encouraging outlook for Genting Malaysia’s flagship property, Resorts World Genting, projecting that revenue will rebound to 100% of pre-COVID levels by 2025. This forecast accompanies the affirmation of Genting Malaysia’s Long-Term Issuer Default Rating (IDR) at ‘BBB’ with a stable outlook. However, the agency expresses concerns regarding the company’s U.S. subsidiary, Genting New York LLC, particularly its exposure to the underperforming Resorts World Catskills.
Optimistic Revenue Growth Projections
Fitch’s analysis reflects significant confidence in Genting Malaysia’s revenue recovery. The agency has raised its forecasts for the next two years, anticipating a complete recovery to 2019 levels by 2025.
Domestic and International Tourism
The recovery in revenue is closely tied to a resurgence in both domestic and international tourism. With COVID-19 restrictions gradually lifting, local travel is seeing an uptick as consumer confidence grows. Additionally, international travelers are beginning to return, aided by improving conditions in regional travel. This dual rebound positions Resorts World Genting to capitalize on increased visitor numbers.
Infrastructure Enhancements
Recent infrastructure improvements, particularly the completion of repairs to the access road to Genting Highlands in July 2024, are expected to further facilitate easier access to the resort. This enhancement is anticipated to attract more visitors, thus boosting revenue streams.
Financial Stability and Leverage Outlook
Fitch’s report indicates a robust financial outlook for Genting Malaysia, particularly regarding its leverage ratios. The agency forecasts a decrease in net leverage from 4.0x in 2023 to approximately 3.0x by 2026, driven by anticipated higher EBITDA growth.
Anticipated EBITDA Growth
The projected revenue increase will significantly contribute to stronger earnings before interest, taxes, depreciation, and amortization (EBITDA). This growth is crucial for maintaining a healthy financial profile, allowing Genting Malaysia to invest in further enhancements and expansions.
Managing Capital Expenditures
Even with the expectation of increased capital expenditures, especially if Genting Malaysia secures a casino license in New York, Fitch believes the leverage ratio will remain below 3.5x. Although there may be temporary spikes in leverage during construction phases, the overall financial stability is expected to remain intact, mitigating long-term risks.
Challenges in U.S. Operations
While Genting Malaysia shows promising recovery signs, Fitch highlights ongoing concerns about its U.S. subsidiary, Genting New York LLC. The agency’s decision to keep its ‘BBB-’ rating on Rating Watch Negative reflects uncertainty regarding the subsidiary’s future, primarily due to its management of the struggling Resorts World Catskills.
Licensing Uncertainties
The outlook for Genting New York hinges significantly on its application for a full-scale casino license in downstate New York. The outcome of this bidding process is crucial, as it could dramatically affect the subsidiary’s operations and financial health. A successful bid would not only enhance revenue prospects but also allow for better geographic diversification.
Potential Benefits of Licensing
Should Genting New York succeed in obtaining the license, the advantages could be substantial. The license could lead to increased revenues and potentially lower tax burdens on gross gaming revenue, currently around 65%. This shift would improve the financial performance of the U.S. operations, benefiting the overall Genting Malaysia group.
Future Considerations and Strategic Outlook
Fitch’s current forecasts do not factor in the potential win of a casino license for Genting New York, reflecting the uncertainties surrounding the bidding process. Nevertheless, the strategic implications of a successful bid are clear and could enhance the overall financial profile of Genting Malaysia.
Sustained Financial Health
The agency anticipates that even with any temporary spikes in leverage during construction phases, Genting Malaysia’s overall financial health will remain resilient. The company is well-positioned for continued investment and growth, particularly as the tourism landscape evolves.
Fitch Ratings’ upgraded forecasts for Genting Malaysia reflect a largely optimistic view of the company’s recovery trajectory, particularly for Resorts World Genting. The anticipated return to pre-COVID revenue levels by 2025 signals positive trends for stakeholders. While challenges persist, especially regarding the U.S. subsidiary, the combination of strategic investments, improved tourism dynamics, and infrastructure enhancements positions Genting Malaysia for a promising future.
As the situation unfolds, monitoring Genting New York LLC’s licensing outcome will be critical in shaping the overall financial outlook for Genting Malaysia and its affiliates. The pathway ahead appears increasingly favorable, provided that key strategic initiatives are successfully executed.