Genting Singapore
Price target:
DBS Group Research “buy” $1
UOB Kay Hian “buy” $1.08
RHB Group Research “buy” 90 cents
Maybank Securities “hold” 84 cents
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Reopening play is attractively valued but dividend disappoints
Analysts from DBS Group Research, RHB Group Research and UOB Kay Hian remain upbeat on Genting Singapore’s prospects as Singapore gradually reopens its borders, even though the resort operator reported 4QFY2021 ended December 2021 results and dividend for the FY2021 coming in below expectations.
“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,” writes DBS analyst Jason Sum in his Feb 18 report.
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To Sum, Genting Singapore’s current share price is a “good entry point” as the stock’s valuation is still cheap at 9.6x EV/Ebitda (FY2022), compared to the regional peer average of 20.5x. “[This] is unjustified in our view given Genting Singapore’s better recovery prospects,” says Sum, who has a “buy” call and $1 target price
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 Genting Singapore’s earnings in FY2022,” he adds.
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.
“We still like the stock as a direct proxy to an eventual tourism play,” states the RHB research team, which has a “buy” call and 90 cents price target. “As more borders reopen, stronger earnings recovery should kick in.”
On Feb 17, Genting Singapore reported earnings of $95.1 million for the 2HFY2021, 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.
Sum was expecting a higher dividend payout, given how the company’s substantial net cash of $3.1 billion as of Dec 2021 “has no significant planned capital outlays” after its bid in Japan fell through.
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Nonetheless, as the management has indicated it will likely raise dividend distribution in FY2022, the analyst is projecting a dividend of two cents and three cents for FY2022 and FY2023 respectively.
For now, Sum has trimmed his ebitda estimates for FY2022 and FY2023 by 6% to 8% to factor in a soft 1QFY2022 no thanks 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,” he adds.
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 their “buy” call with an unchanged target price of $1.08. They see Genting Singapore a “laggard” among those counters benefitting from borders 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.
They 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.
While they are disappointed by the final dividend of just one cent, which implies a full-year yield of 1.3%, they expect the counter’s dividend yield to normalise at 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 cents.
“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.”
Meanwhile, Maybank Securities Yin Shao Yang is relatively cautious with his views, with a call of “hold” and 84 cents price target. “Genting Singapore does not expect a marked improvement in FY2022 but FY2023 instead, which is consistent with our view.” — Felicia Tan
Raffles Medical Group
Price target:
RHB Group Research “buy” $1.55
Maybank Securities “buy” $1.50
CGS-CIMB “hold” $1.33
PhillipCapital “neutral” $1.27
Normalised growth with pandemic abating
Analysts continue to view Raffles Medical Group favourably following its results for FY2021 ended Dec 31, 2021, where earnings rose by 27.7% to $84.2 million, from $65.9 million in the year before, thanks to stronger revenue growth from providing Covid-19 related services.
This is “in line with our expectations” and shows that the group is slowly transitioning to business as usual, RHB Group Research analyst Shekhar Jaiswal writes in a Feb 22 note.
Going forward, Jaiswal, who has a “buy” call and $1.55 target price on the stock, expects revenue from Covid-19 related services to taper off in the next two quarters. This comes as Singapore’s default care management for Covid-19 patients has become home recovery, since most patients are either asymptomatic or have mild symptoms.
Additionally, Raffles Medical, which has been operating exclusive healthcare clinics offering the RT-PCR testing at the airport, is expected to take a hit from the simplification of testing protocols for vaccinated travellers entering Singapore, as the expensive on-arrival RT-PCR test has been replaced with a cheaper supervised Antigen Rapid Test.
“We forecast Covid-19 support activities to taper off sequentially, especially its RT-PCR test revenues as Singapore relaxes testing protocols for vaccinated travel lane (VTL) travellers,” notes Maybank Securities analyst Eric Ong, who has a “buy” call and $1.50 target price.
Meanwhile, Ong reckons that the company’s operations in China may take a hit from the emergence of sporadic Covid-19 clusters.
For now, the management has guided that the breakeven for its Chongqing hospital is likely to be delayed by a year till 2022. In this time, its hospital in Shanghai — which commenced operations in mid-2021 — is expected to incur ebitda losses of $10 million this year, notes Ong.
In any case, he adds that the company’s three hospitals in China will continue to see improved patient loads with the easing of movement restrictions.
In FY2021, Raffles Medical’s operations in China accounted for 7% of its total revenue. RHB’s Jaiswal is expecting “the China operations to see a steady ramp-up in revenue from 2H2022”. He sees 2022 as a transition year for Raffles Medical “as the decline in Covid-19-related revenue should be partially offset by higher hospital revenue”.
In any case, Jaiswal adds that the easing of borders and resumption of international travel would see more of Raffles Medical’s patients from regional countries seeking treatment here.
Agreeing, Maybank’s Ong says that the Raffles Medical should benefit from the government’s move to restructure the local healthcare ecosystem to allow general practitioners to play a greater role.
CGS-CIMB’s Tay Wee Kuang is more cautious. He has lowered his FY2022 and FY2023 earnings forecast by 21 to 23% to reflect normalised earnings amidst a challenging operating environment. “The exceptional growth in FY2021 will be tough to beat,” says Tay, who has “hold” call and $1.33 target price on the stock.
PhillipCapital’s Paul Chew is also “neutral” on the group as he expects FY2022 to see weaker earnings. The lower estimate is attributable to the expected decline of Covid-19-related services from reduced polymerase chain reaction (PCR) swab tests and fewer vaccination programmes, full-year losses from Raffles Hospital Shanghai and a slower recovery in foreign patients.
In his report dated Feb 23, Chew has lowered his target price to $1.27 from $1.35. He has also cut his earnings estimates for FY2022 by 8%. — Amala Balakrishner
Sasseur REIT
Price target:
CGS-CIMB “add” $1.06
Maybank Securities “buy” $1.10
DBS Group Research “buy” $1.15
Record distribution, significant debt headroom
Analysts are positive on Sasseur REIT’s growth prospects after the REIT reported its 4QFY2021 ended December 2021 results on Feb 18.
CGS-CIMB, Maybank Securities and DBS Group Research analysts have kept their “add” and “buy” calls, with target prices of $1.06, $1.10 and $1.15, respectively. The REIT’s FY2021 DPU, which reached a new high of 7.104 cents, surpassed the analysts’ and consensus estimates.
Sasseur REIT reported entrusted manager agreement (EMA) rental income of $35.4 million in 4QFY2021. Its income available for distribution expanded 8.4% y-o-y to $25.3 million, underpinned by higher fixed component of the EMA rental income, a stronger renminbi, as well as interest cost savings, note CGS-CIMB analysts Lock Mun Yee and Eing Kar Mei.
The REIT’s portfolio sales rose 16.6% q-o-q in 4QFY2021 due to seasonality, but fell 6.8% y-o-y as pandemic measures curbed buying sentiment, says Maybank Securities analyst Chua Su Tye. He highlights that the Chongqing Liangjiang Outlet continued to perform better, representing about 52% of Sasseur REIT’s 4QFY2021 sales.
“Contribution from fashion, sports and international brands rose to about 79% of gross rental income from higher average selling prices, but should ease into the 1HFY2022 summer months. Sales growth momentum is strong, and we expect better y-o-y comparables in FY2022,” says Chua.
The REIT’s portfolio occupancy rose to 94.5% in 4QFY2021, with improvements across all outlets. Chongqing Liangjiang remains fully occupied and yields look set to rise with a conversion of the level 5 office to retail space, Chua highlights.
Hefei’s occupancy climbed further to 95.7% post-asset enhancement initiatives (AEI), while Chongqing Bishan’s occupancy improved to 83.5%. Sasseur REIT expects this to rise further to about 90% in FY2022, as an AEI to decant the mall completes in 1QFY2022, and tenant remixing initiatives are expected to boost sportswear contribution.
The completion of several AEI projects this year should help to increase traffic flow to two of Sasseur REIT’s four malls. This includes conversion of ancillary space into retail space at Chongqing Mall which was completed in December 2021 and space reconfiguration at Bishan Mall pending completion by 1QFY2022, DBS analysts Geraldine Wong and Derek Tan wrote.
Meanwhile, Lock and Eing note that Sasseur REIT is well-placed to tap into inorganic growth opportunities given its robust balance sheet, including exploring acquisition opportunities of its sponsor pipeline assets such as Xian Outlet Mall.
“It has significant debt headroom of $952 million, based on our assumption of a ceiling leverage of 50%. As these properties are fairly sizeable, we believe any potential acquisition would likely be funded through a combination of debt and equity.”
Wong and Tan point out that Sasseur REIT is negotiating to refinance $516 million worth of debt due next March. Given People Bank of China’s dovish stance, the REIT could potentially reduce its average cost of debt from the current 4.4% to 4% post-refinancing. — Khairani Afifi Noordin
