The Covid-19 pandemic has been catastrophic for the gaming sector in Singapore, as lockdown measures saw local casinos operating for only a single week during 2Q2020. UOB Kay Hian’s Vincent Khoo and Jack Goh expect a whopping 65-70% contraction in gross gaming revenue (GGR) for Singapore’s casinos in 2020, with sector weakness likely to remain in the interim amid difficulties bringing down Covid-19 cases.
Marina Bay Sands (MBS) was particularly badly hit by the pandemic, with Las Vegas’s 2Q2020 results reflecting a more than 95% y-o-y drop in revenue in addition to an EBITDA loss of $159 million. Both the VIP and mass gaming markets were adversely affected, with mass and VIP GGR falling 98.6% and 97.8% y-o-y respectively. “We also see a fall in MBS’ EBITDA margin in 2Q20 at -491.3% from +46.1% in 1Q2020 and +50.3% in 2Q2019,” the analysts remark.
MBS’s VIP earnings fell primarily due to a steep decline in RCV by 98.3% y-o-y and 98.2% q-o-q. Meanwhile, the mass market was hit by a steep drop in gaming volume, with mass market non-rolling volume plunged 97.6% qoq -- exceeding the historical q-o-q drop of 3-7% -- and 98.7% y-o-y, while slot handle plunged 97.4% y-o-y.
Resorts World Sentosa (RWS) is facing similar woes, with UOB Kay Hian’s valuation of parent company Genting estimating a y-o-ynet profit decline of 92% for FY2020 and 18% for FY21. “Expect gaming and non-gaming revenues to plunge and RWS to also incur EBITDA loss,” comment the analysts, though cost rationalisation efforts and the government’s provision of incentives such as the Job Support Scheme and property tax rebate will stave off further losses.
While Khoo and Goh have advised investors to maintain market weight on the gaming industry, they see a slower recovery in 2H2020. Despite casinos resuming operations on 20 July with the shift into Phase 2 of lockdown measures, a quick reopening of borders remains elusive due to persistently high regional Covid-19 cases, which will likely hurt Singapore’s gaming industry due to its high dependence on foreign tourism. Stringent social distancing and limitation of gaming capacity at 25% will also prove a further drag on gaming volume going forward.
Genting’s near-term share price, however, will also depend on the decision by the Japanese government regarding its bid to build an “integrated resort” in Japan. “We can only foresee upside to Genting’s price if the company pursues a more aggressive capital management, which in turn depends on where Genting continues to pursue its bid for the Japan IR which requires hefty capex and bears an uncertain payback,” say Khoo and Goh. Otherwise, Genting’s share price is expected to weaken in tandem with regional peers due to slow border reopening.
For now, Khoo and Goh have maintained their “hold” call on Genting with a target price of $0.80 with an entry price of $0.68. They also estimate a prospective dividend yield of 5%.
As of 2.30pm, Genting is trading at $0.74 with a price-to-earnings (P/E) ratio of 13.06. Dividend yield is currently 5.37%.
