SINGAPORE (Aug 3): Oh, how the wheels of fortunes have turned in favour of Genting Singapore (GENS).
This time last year, the integrated resorts and casino operator was languishing in the red after the recognition of a fair value loss of $95 million on derivative financial instruments, even as a low win percentage in the premium market saw revenue slip by 17%.
The group cautioned that its VIP business faced increasing pressure amid the economic uncertainty shrouding the region, and vowed to launch further cost efficiency initiatives to help turn the ship around.
But now, it seems Lady Luck is smiling on Genting Singapore again.
GENS on Wednesday after market close posted earnings of $143.3 million for the 2Q17 ended June, swinging out from a net loss of $10.5 million a year ago.
To be sure, its bottom-line was lifted by the sale of its 50% stake in an integrated resort in Jeju, Korea that reaped a gain on disposal of $96.3 million.
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But on the top-line, Genting Singapore too is showing some signs of strength.
Revenue in 2Q17 jumped 24% to $596.1 million on the back of a higher VIP win rate and a resilient mass market segment, even as its gross profit trebled to $274.8 million during the quarter, from $92.6 million a year ago.
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“This was a significant surprise to us, largely because 2Q is typically a weak quarter,” says CIMB Research lead analyst Cezzane See in a Thursday report.
CIMB is keeping its “add” call on Genting Singapore. However, the research house is raising its target price to $1.35, from $1.24 previously, on the back of the lifting of adjusted EBITDA forecasts for FY17-19 by between 9.7% and 11.0%.
“Adjusted EBITDA margin of 49.1% in 2Q17 was the highest in the past 12 quarters,” says See. Adjusted EBITDA rose 24.0% in 2Q17, bringing adjusted EBITDA for the first half 2017 to $576 million – some 56% of CIMB’s full-year forecast of $1.03 billion.
See attributes the beat to better-than-expected gaming revenues, which climbed 33% to $442 million in 2Q17.
In addition, she says Genting Singapore’s tight cost control, especially on trade receivable provisions, has ensured that its margins were kept intact.
Maybank Kim Eng Research analyst Yin Shao Yang agrees. Trade receivables impairments in 1H17 were lower than expected, Yin says. At $29.7 million, it accounted for just 35% of Maybank’s full-year estimate.
In addition, the analyst points to a higher-than-expected 1H17 VIP hold rate of 3.0%, which beat the forecast of 2.85%, as a contributing factor to a set of results which “handily outperformed our expectation.”
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Maybank is keeping Genting Singapore at “buy” and raising its target price to $1.35, from $1.25 previously.
“2Q17 earnings were 15% above our estimate. Therefore, we raised our FY17-19 EBITDA estimates by 7-8%,” Yin says in a Thursday report. “More importantly, operating conditions have improved markedly.”
According to Yin, the industry-wide VIP volume rose for the first time in 114 quarters in 2Q17. Meanwhile, mass market gross gaming revenue (GGR) regained its footing to come in flat in 2Q17 after four quarters of year-on-year declines.
This is “thanks to recovering consumer sentiment in Singapore,” Yin says.
Looking ahead, on the cards for GENS are the rejuvenation of Resorts World Singapore (RWS) in Sentosa, as well as the possible entry into Japan.
“The group is currently in discussion with the government to finalise a 5-year strategic roadmap charting its reinvestment into RWS,” says RHB Research’s Singapore research team in a Thursday report.
“We believe this could help to rejuvenate visitation interests to the seven-year-old integrated resort in the long run,” RHB says.
Genting Singapore says its attractions business achieved daily average visitations exceeding 19,000, from more than 18,000 a year ago. Its hotel segment saw an occupancy rate of over 95% during the quarter, from 93% last year.
At the same time, RHB says Genting Singapore is planning to go “all out on Japan”.
“The group reaffirmed its openness towards forming joint ventures with local institutions to enhance its chances of winning,” RHB says. It is also exploring the possibility of participating in more than one bid to enhance its chances.
According to RHB, some of the potential cities include Osaka, Yokohama, and Hokkaido.
In addition, RHB says Genting Singapore has signalled its intention to fully redeem its outstanding perpetuals of $2.3 billion by Oct 2017, financed by its existing cash pile of $5.7 billion.
RHB is keeping its “neutral” rating on Genting Singapore, but raising its target price to $1.19. from $1.04 previously.
Meanwhile, DBS Group Research notes that Genting Singapore’s share price has already surged by more than 40% since the brokerage upgraded it to “buy” in August last year.
However, DBS says the casino and resort operator still has room to grow on the back of higher earnings.
“We believe the rally can be sustained,” says DBS analyst Mervin Song in a Thursday report. “Despite the recent rally, GENS still offers compelling value, as it trades at 10.0x FY18F EV/EBITDA.”
Song notes that Genting Singapore is trading at a 30% discount to its Macau peers on an EV/EBITDA basis. “We believe GENS can re-rate closer to its average EV/EBITDA multiple of close to 13x,” he says.
DBS is keeping its “buy” call on Genting Singapore with a higher target price of $1.45, from $1.35 previously.
“Our view is underpinned by expected positive newsflow including continued recovery in earnings, details of GENS moving towards a more efficient capital structure, refresh of Resorts World Sentosa, and bid for a Japanese casino next year,” Song adds.
As at 1.14pm, shares of Genting Singapore are trading 1 cent higher at $1.19.
