SINGAPORE (May 11): Analysts are remaining upbeat on casino and resorts operator Genting Singapore (GENS) after a strong 1Q18.
“GENS’s results came in above expectations on a combination of good luck factor and strong VIP gaming volumes,” says UOB Kay Hian lead analyst Vincent Khoo in a Friday report.
GENS posted a 20% rise in 1Q18 earnings to $217.2 million, as revenue rose 15% to $675.1 million.
See: Genting Singapore posts 20% rise in 1Q earnings to $217.2 mil with focus on the affluent
“We expect valuations to trend up over time, supported by stable Singapore operations and as its bidding for Japan’s IR concession builds up to the requests for proposals (RFP) stage (expected in 2019),” Khoo says.
UOB is keeping its “buy” call on GENS with a higher target price of $1.38, from $1.30 previously.
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In addition, CGS-CIMB Securities notes that GENS is gaining market share.
“We estimate GENS clawed higher VIP and mass market shares of 49% and 42.6% respectively,” says lead analyst Cezzane See in a Thursday report.
“GENS’s mass market share seems to have high correlation of 0.9x with the RM/S$, and we believe the slight appreciation in 1Q18 could have had an impact on market share,” she adds.
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CGS-CIMB is keeping its “add” call on GENS with an unchanged target price of $1.40.
See says the research house is keeping its forecasts for now, despite a strong 1Q18, as 2Q is typically a seasonally weaker quarter. In addition, she points out that the favourable luck factor could normalise.
Looking ahead, OCBC Investment Research lead analyst Carmen Lee believes there is room for GENS’s VIP volumes and EBITDA to continue growing.
“Given that the impairment of trade receivables remained stable, we believe that the group has room to pursue a looser credit policy,” says Lee.
“For the non-gaming segment, we look forward to events such as Football Fever in Jun/Jul as well as the theatrical production Super Mommy in May,” she adds. “We also expect 2018 and 2019 to be positive for the wider hospitality sector in Singapore, as the addition of new hotel rooms slows down.”
At the same time, Lee notes GENS’s margins could grow further in the medium term as the group embarks on its innovation plan to address challenges such as manpower constraints.
OCBC is keeping its “buy” recommendation on GENS with an unchanged fair value estimate of $1.45.
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Meanwhile, for DBS Group Research, GENS’s recent price correction presents an opportunity not to be missed.
“GENS’ share price corrected by over 10% the past 3 months due to concerns post the 4Q17 results that adjusted EBITDA margins would be under pressure,” says analyst Mervin Song in a Friday report. “We believe these concerns were overplayed given the dip in margins was largely due to payment of staff bonuses, and margins in 1Q18 have since rebounded to close to 54% -- the highest level in over 11 quarters from 44% in 4Q17.”
“Thus, at current share price, GENS offers outstanding value for exposure to a growing VIP business and a duopoly market,” he adds.
DBS is keeping its “buy” call on GENS with an unchanged target price of $1.49.
“Despite the recent turnaround in profitability, some investors remain sceptical over the sustainability of GENS’s earnings recovery,” says Song. “This scepticism should subside, resulting in a further re-rating of GENS’s share price.”
As at 4.04pm, shares of GENS are trading 11 cents higher, or up 9.5%, at $1.27. According to DBS valuations, this implies a price-to-earnings ratio of 20 times and a dividend yield of 3.7% for FY18.
