Analysts from DBS Group Research, UOB Kay Hian and RHB Group Research are remaining buoyant on Genting Singapore’s prospects as Singapore gradually reopens its borders. Their optimism also comes despite the group’s 4QFY2021 results and dividend for the FY2021 coming in below expectations.
Maybank Securities is the only house to remain neutral on the counter.
DBS analyst Jason Sum has kept “buy” on the counter with an unchanged target price of $1.
“We believe it is the right time to accumulate Genting Singapore given the clarity on Singapore’s reopening roadmap and the government’s commitment to radically simplify domestic Covid-19 measures,” he writes in his Feb 18 report.
To Sum, Genting Singapore’s current share price levels are a “good entry point” as the stock’s valuation is still cheap at 9.6 times EV/EBITDA (FY2022), compared to the regional peer average of 20.5 times.
“[This] is unjustified in our view given Genting Singapore’s better recovery prospects,” he adds.
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Sum also deems Genting Singapore “well-positioned” to recover with the implementation of more vaccinated travel lanes (VTLs).
“We expect international tourism (which accounted for 75-80% of pre-Covid-19 attendance at Resorts World Sentosa or RWS) to stage a more pronounced rebound from 2QFY2022, giving a significant boost to GENS’s earnings in FY2022,” he says.
In the meantime, Genting Singapore’s strong performance over the past few quarters demonstrates that it can still rely on support from its domestic market, he notes.
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On Feb 17, Genting Singapore reported earnings of $95.1 million for the 2HFY2021 ended December, down 49% y-o-y.
The sequentially softer results for the 4QFY2021 stood largely in line with Sum’s estimates, although its final dividend of 1 cent came in below expectations.
“We initially anticipated a higher dividend payout this year given Genting’s substantial net cash position ($3.1 billion as of December 2021) and that Genting Singapore has no significant planned capital outlays apart from RWS2.0 with a Japan integrated resort now out of the picture,” writes Sum in his Feb 18 report.
“Nonetheless, the management indicated that Genting Singapore will likely raise dividend distribution in FY2022 to reward shareholders. Hence, we are maintaining our distribution per share (DPS) projections of 2.0 and 3.0 cents per share in FY2022/FY2023 respectively,” he adds.
Sum has trimmed his EBITDA estimates for the FY2022 and FY2023 by 6% to 8% to factor in a soft 1QFY2022 due to the surge in new Omicron cases and delays in China’s reopening of its borders.
“Our FY2022 and FY2023 EBITDA estimates are below consensus, as we expect mass travel to take longer to normalise and slight margin pressure,” writes Sum.
However, revised projections still point to EBITDA growing at a compound annual growth rate (CAGR) of 48% between FY2021 to FY2023.
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A key risk to Genting Singapore’s recovery, in Sum’s view, would be the prolonged Covid-19 situation. A delay in travel activity in the region could also put a dent to the counter’s performance.
UOB Kay Hian analysts Vincent Khoo and Jack Goh have also maintained “buy” on Genting with an unchanged target price of $1.08, as they see the counter a “laggard” among the counters that will benefit from the borders reopening.
Like DBS’s Sum, Khoo and Goh say they “expect the stock to re-rate in reaction to Singapore’s gradual border reopening”.
“Theoretically, Genting Singapore’s share price could reach $1.08 in 2023 in the scenario of Genting’s EBITDA clawing its way back to the pre-pandemic level of $1.2 billion,” they write in their Feb 18 report.
The analysts have also lowered their FY2022 EBITDA estimate by 25% following the later-than-expected relaxation of borders due to the emergence of the Omicron variant.
Meanwhile, they expect the counter’s dividend yield to normalise in 4.7% in 2023, “assuming revenue and cash flows recover back to pre-pandemic levels, and that Genting Singapore restores its 2019 dividend payout level of 4.0 cents”.
“Theoretically, our projected 2023 after-tax EBITDA is sufficient to fund a DPS of 4.0 cents (4.7% of 2023 yield),” they write.
Genting Singapore’s results for the 4QFY2021 stood below the UOB Kay Hian analysts’ expectations
To be sure, its net profit for the quarter represents only about 87% and 90% of their full-year forecasts, as well as that of the street.
“The earnings disappointment reflected soft gaming volume, lower government subsidies and presumably lower win rate and closure costs associated to its abandoned bid for Japan’s gaming concession,” note the analysts.
The final dividend of 1 cent, which implies a full-year yield of 1.3%, also disappointed Khoo and Goh’s expectations.
“Genting Singapore did not declare any interim DPS in the previous quarters this year (2QFY2019: 1.5 cents), mainly due to lacklustre operational profit in 9MFY2021,” they point out.
In their report, the analysts see the potential of significantly better capital management moving forward after Genting Singapore dropped its decade-long pursuit of clinching a pricey Japan integrated resort (IR) concession.
“With no new compelling projects to consider, management is targeting to enhance capital management and to develop a dividend policy. Theoretically, the scope of the company’s capital management can be significant, considering its net cash of $3.3 billion (27 cents/share) and that post-pandemic EBITDA is largely sufficient to fund its $4.5 billion RWS 2.0 expansion,” they write.
The team at RHB Group Research has kept "buy" on Genting with an unchanged target price of 90 cents as Genting Singapore's results for the FY2021 and 2HFY2021 stood below expectations.
"Despite 2HFY2021 results coming in below expectations, we believe the worst is likely over, as Singapore’s gradual transition towards living with COVID-19 should eventually benefit Genting Singapore, via increased footfall to its premises," writes the team in its Feb 18 report.
"While the current number of daily Covid-19 cases remains high, due to the Omicron variant, we are still upbeat on Genting Singapore's outlook, as Singapore’s high vaccination rates and the safety measures in place have kept the number of severe Covid-19 cases low," it adds, noting that Singapore is gradually looking to transition with living with Covid-19.
Furthermore, the RHB team sees the government's relaxing of travel restrictions and expanding VTLs as a sign that should "bode well" for Genting Singapore, especially with the return of foreign visitors.
Even though the team believes things are looking up for the counter, it has cut its earnings estimates for the FY2022 to FY2023 by 37.9% to 13% after taking into account the slower reopening of borders.
The unchanged target price is based on the assumption of a higher return of foreign tourists in the FY2023, writes the team.
"Our ascribed 8 times EV/EBITDA valuation is based on the historical mean level, which we think is fair, as earnings recovery hinges on the normalisation of the operating environment," it adds.
Maybank Securities analyst Samuel Yin has kept "hold" on Genting Singapore with a slightly higher target price of 84 cents from 83 cents before on "housekeeping".
To him, the group's 2HFY2021 results were "weak" due to the surge in Covid-19 cases in Singapore.
"Going forward, Genting Singapore expects its outlook to be better albeit from next year onwards. Our FY2022 and FY2023 earnings are little changed and we introduce FY2024 earnings," he writes in his Feb 18 report.
He has forecast Genting Singapore's FY2022 EBITDA to ease 15% y-o-y on the back of higher gaming tax rates and impairment of trade receivables. In the meantime, he estimates FY2023 EBITDA to recover by 64% y-o-y on the return of Malaysian travellers.
FY2024 EBITDA is expected to recover 69% y-o-y due to the return of gamblers from Indonesia and China.
As at 3.47pm, shares in Genting are trading 1 cent lower or 1.27% down at 78 cents, or an FY2022 P/B of 1.2 times and dividend yield of 3.2%, according to UOB Kay Hian’s estimates.
Photo: Samuel Isaac Chua/The Edge Singapore
