SINGAPORE (Mar 18): CGS-CIMB Research is slashing its forecasts for Genting Singapore (GENS), after the integrated resort and casino operator issued a profit guidance to warn that its financial results are expected to be “significantly and adversely impacted” by the coronavirus outbreak.
In a report on March 18, the brokerage estimates that GENS could see a 40% year-on-year drop in mass gaming revenue this year, while the rolling chip volume for its VIP market is expected to be halved.
CGS-CIMB also forecasts a 30% drop in revenue from GENS’ non-gaming segment.
“In the wake of the global pandemic, we estimate the total fall in Singapore tourist volume could be steeper than the 30% y-o-y drop previously guided by the Singapore Tourism Board,” says analyst Cezzane See.
As such, the brokerage has slashed its adjusted EBITDA forecast for FY2020 ending December by nearly 35%. CGS-CIMB now expects GENS to register adjusted EBITDA of $652.2 million for FY2020 – a 45% decline compared to a year ago.
However, assuming a 10% recovery in volumes thereafter, adjusted EBITDA is forecast to climb to $918.6 million in FY2021, See says. Notably, this is still some 19% lower than the previous forecast.
As a result of the downward revision in EBITDA forecasts, GENS’ earnings per share is projected to fall by between 19.3% and 52.2% in FY2020 to FY2022.
Consequently, CGS-CIMB has dropped its target price for GENS by 24% to 76 cents.
However, See warns that GENS’ share price could trade at as low as 50 cents, or 5 times FY2020F EV/EBITDA, in the near term.
This would put the counter at similar valuation to 2016, when it was “plagued by bad debt provisions following the tough credit conditions and lower visitation from Chinese VIP players,” See says.
However, the analyst notes that, compared to the rough patch four years ago, GENS is currently in a better financial position to weather the storms ahead.
“The difference between now and 2016 is stronger FY2020F net cash of $2.7 billion compared to 2016 estimated net cash ex-perpetuals of $1.4 billion, and lower trade receivable impairments of $90 million compared to the FY2014-FY2016 average of close to $255 million,” See says.
The analyst is reiterating her “add” call on GENS, on the back of the potential recovery in visitor figures and revenue, as well as lower capex spending.
In a profit guidance note after market close on March 17, GENS had warned that its results for 1QFY2020 ending March 31 and 1HFY2020 ending June 30 are expected to be lower than the corresponding periods last year.
The group reports that Resorts World Sentosa has experienced a significant decrease in visitor attendance and revenue across all its facilities.
Last month, the group had announced that it was “generally pessimistic” about the outlook for the first half of 2020.
To mitigate the impact, the group has rolled out a series of cost control measures.
As at 12.20pm on Wednesday, shares in GENS are trading 2.4% lower, or down 1.5 cents, at 60.5 cents.
According to CGS-CIMB valuations, this implies an estimated price-to-earnings (P/E) of 28.76 times, a price-to-book value (P/BV) of 0.95 times, and a dividend yield of 6.46% for FY2020F.
