925 Brokers' Digest

In a report on March 18, the brokerage estimates that GENS could see a 40% year-on-year drop in mass gaming revenue this year, while the rolling chip volume for its VIP market is expected to be halved.

CGS-CIMB also forecasts a 30% drop in revenue from GENS’s non-gaming segment.

“In the wake of the global pandemic, we estimate the total fall in Singapore tourist volume could be steeper than the 30% y-o-y drop previously guided by the Singapore Tourism Board,” says analyst Cezzane See.

As such, the brokerage has slashed its adjusted Ebitda forecast for FY2020 ending December by nearly 35%. CGS-CIMB now expects GENS to register adjusted Ebitda of $652.2 million for FY2020 — a 45% decline compared to a year ago.

However, assuming a 10% recovery in volumes thereafter, adjusted Ebitda is forecast to climb to $918.6 million in FY2021, See says.

Notably, this is still some 19% lower than the previous forecast.

As a result of the downward revision in Ebitda forecasts, GENS’s EPS is projected to fall by between 19.3% and 52.2% in FY2020 to FY2022.

Consequently, CGS-CIMB has dropped its target price for GENS by 24% to 76 cents.

However, See warns that GENS’s share price could trade at as low as 50 cents, or 5 times FY2020F EV/Ebitda, in the near term.

This would put the counter at similar valuation to 2016, when it was “plagued by bad debt provisions following the tough credit conditions and lower visitation from Chinese VIP players,” See says.

However, the analyst notes that, compared to the rough patch four years ago, GENS is currently in a better financial position to weather the storms ahead.

“The difference between now and 2016 is stronger FY2020F net cash of $2.7 billion compared to 2016 estimated net cash ex-perpetuals of $1.4 billion, and lower trade receivable impairments of $90 million compared to the FY2014–FY2016 average of close to $255 million,” See says.

In a profit guidance note after market close on March 17, GENS had warned that its results for 1QFY2020 ending March 31 and 1HFY2020 ending June 30 are expected to be lower than the corresponding periods last year.

The group reports that Resorts World Sentosa has experienced a significant decrease in visitor attendance and revenue across all its facilities.

Last month, the group had announced that it was “generally pessimistic” about the outlook for the first half of 2020. — Stanislaus Jude Chan

ST Engineering
Price targets:
$4.90 BUY (RHB Group Research)
$5.00 OUTPERFORM (Macquarie Research)
$4.92 UPGRADE BUY (Morningstar Research)
$4.90 OVERWEIGHT (JPMorgan Research)
$4.94 BUY (Nomura Research)
$4.46 BUY (UOB Kay Hian Research)

Shares in ST Engineering might have fallen more than 25% from its recent peak of $4.42 in late February, but RHB Group Research continues to see the counter as a strong long-term defensive pick.

For one, analyst Shekhar Jaiswal notes that the stock has outperformed the benchmark Straits Times Index by 3.6% so far this year.

Even then, Jaiswal believes that the market seems to be pricing in more than the research house’s worst case scenario.

"Based on our estimates and implied valuation, we assess that at the current share price, market seems to be discounting more than 15% earnings decline for ST Engineering in 2020,” Jaiswal says.

Even in its worst case scenario, RHB estimates that ST Engineering could see only as much as an 8% decline in earnings in 2020 — nearly half of what the market is pricing in.

“It is worth noting that since 2001, the company has never reported double-digit percentage net profit decline despite facing business headwinds during the SARS outbreak as well as global financial crisis,” Jaiswal adds.

The way Jaiswal sees it, ST Engineering has its long-term growth drivers intact, despite the near-term economic uncertainties.

And his opinion is backed up by the group’s record high orderbook of $15.3 billion, which offers over two years of revenue visibility.

“Business and geographic diversity should ensure STE delivers revenue growth during 2019–2022 despite near-term economic uncertainties,” he adds.

Meanwhile, the analyst points out that earnings contribution from its recently completed acquisitions should continue to drive earnings growth.

“Its record-high orderbook, earnings contribution from recently completed acquisitions and investments to expand its capabilities in the Aerospace and Electronics segments should deliver long-term earnings growth,” Jaiswal says. — Stanislaus Jude Chan

Yangzijiang Shipbuilding
Price targets:
$1.50 BUY (DBS Group Research)
$1.25 BUY (UOB Kay Hian Research)
$1.37 ADD (CGS-CIMB Research)
$1.70 OVERWEIGHT/CAUTIOUS (Morgan Stanley Research)
$1.12 OVERWEIGHT (JPMorgan Research)

While Yangzijiang Shipbuilding’s share price has tanked some 16% since the outbreak of Covid-19, DBS Group Research analyst Ho Pei Hwa notes in a March 17 report that the counter has outperformed the benchmark Straits Times Index (STI) by some 12%.

Ho believes that the group is now trading at a “compelling” valuation.

The analyst’s optimism comes on the back of an announcement by Yangzijiang that it has secured a new shipbuilding contract for up to 10 vessels, potentially worth a total of US$1.15 billion ($1.63 billion). Two of these vessels are firm orders, while the remaining eight are options.

The contract, inked with investment firm Tiger Group, is one of the largest in the group’s history.

Ho says that the two firm orders lifts the group’s year-to-date wins to some US$334 million, translating to 17% of the brokerage’s full year order wins forecast of US$2 billion.

“Assuming all options are exercised this year, it would contribute to nearly half of Yangzijiang’s full year order wins target,” says Ho.

“However, we might not see that coming through soon given the current macro uncertainties,” she cautions.

In addition, Ho shares that another catalyst for the stock includes stronger contract flows and progress in the liquefied natural gas (LNG) carrier space through its joint venture partner Mitsui. — Uma Devi