Following Genting Singapore’s strong quarterly recovery in 3QFY2020 from 2QFY2020, analysts from CGS-CIMB, DBS Group Research and OCBC Investment Research are advising investors to accumulate Genting Singapore shares, while Maybank Kim Eng and RHB’s analysts are neutral on the casino operator.
Genting Singapore, on Nov 14, reported earnings of about $54.5 million in the 3QFY2020, reversing it from the losses of $163.3 million reported in the previous quarter.
On the recovery, DBS analyst Jason Sum has upgraded his recommendation to “buy” with a target price of $1 from 70 cents previously as he believes normality is not too far away for the group, which operates Resorts World Sentosa (RWS).
“Genting Singapore’s outperformance in 3QFY2020 demonstrated the resilience of gaming demand, giving us confidence that the company can at least churn core EBITDA of $75 million - $100 million on a quarterly basis in the absence of tourists,” says Sum.
“Furthermore, recent successful breakthroughs on the Covid-19 vaccine front underpins our optimism on a swift turnaround in travel activity in 2HFY2021, and we now expect FY2021F EBITDA to be at around 74% of 2019’s level,” he adds.
Sum acknowledges that his FY2021F and FY2022F EBITDA estimates are 14.4% and 7.3% above consensus’ estimates respectively, as he expects pent-up demand to “quickly materialise” once the travel restrictions are lifted.
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His upgraded recommendation also comes as he believes the counter is trading at an “unjustifiably steep discount to its regional peers” at around 7.7x FY2021F EV/EBITDA, which is around 0.8 standard deviations (SD) below its five-year average.
For CGS-CIMB’s Cezzane See and OCBC’s Chu Peng, Genting Singapore’s recovery was better than expected, as they maintain their “add” and “buy” calls on the counter.
See and Chu have also upped their target price estimates to 86 cents (from 73 cents previously) and 96 cents (68 cents previously) respectively.
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Genting’s 9MFY2020 EBITDA of $215.7 million beat See’s and consensus’s FY2020F forecasts on higher-than-expected 3QFY2020 EBITDA.
“While we had forecast some increase in gaming revenues as casinos have been allowed to open since 1 July, the higher gaming revenues of $212.9 million (vs. 2Q20’s S$6.5m) took us by surprise by being close to 1QFY2020’s gaming revenue of $267.9 million. 9MFY2020 revenue of $749.2 million (-c.60% y-o-y) was ahead at c.89% of our FY2020F forecast of $840million,” says See.
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On the strong 3QFY2020 EBITDA, See attributes this to the “significant cost containments and potentially higher-margin mass gaming business in this quarter”.
With Singapore gradually re-opening the economy and its borders, See foresees better prospects for Genting Singapore, with a projected revenue for 4QFY2020 of “at least” $307.4 million.
She has, however, pencilled in a 10% q-o-q drop in 4QFY2020’s gaming revenues due to pent-up demand possibly lifting gaming revenue in 3QFY2020, and expects non-gaming revenue to fall by 60% y-o-y in 4QFY2020F.
“We forecast an adjusted EBITDA margin of 45%, which takes our 4Q20F adjusted EBITDA to c.$138 million. Hence, we lift our FY2020F adjusted EBITDA to $354 million (from $108 million previously), and our FY2020F core net profit to $88 million (up by over a 100% from previous estimates),” she says, leading her FY2021-2022F adjusted EBITDA and net profit assumptions relatively unchanged.
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While Genting Singapore’s further recovery will depend on the return of tourists, See says the group’s strong balance sheet will tide it through the tough times.
The way Chu sees it, Genting Singapore could benefit from the potential easing of social distancing measures as well as government support on domestic tourism.
The recent Covid-19 vaccine news from Pfizer is also positive to the stock, which was reflected in the counter’s strong share price rebound.
“The announcement from Moderna on its 95% effective Covid-19 vaccine could further grow the confidence and drive the recovery,” she says.
Like See, Chu has revised her FY2020/2021F EBITDA forecasts by 400% and 59% respectively on “better outlook and sentiment”.
RHB analyst Juliana Cai is more cautious on her outlook, as she upgrades her call on Genting Singapore to “neutral” from “hold”.
Like the rest of the analysts, Cai has upped her target price to 72 cents from 62 cents previously, as she sees better days ahead for Genting following the “strong base line formed in 3QFY2020”.
“While the higher-than-expected 3QFY2020 earnings could be due to pent-up local demand after a prolonged lockdown, school holidays, and easing capacity restrictions on attractions could help offset the absence of pent-up demand in 4QFY2020,” she notes.
The quarterly business update, Cai says, suggests that Genting Singapore remains able to generate an annualised EBITDA of $500-600 million – even in the absence of tourist spending and capacity limitations, which is a plus.
“The positive operating cash flow generated, coupled with its existing net cash of $3.6 billion as at June 30, gives confidence that the group has sufficient capital to fund its Resorts World Sentosa expansion (RWS 2.0) mega capex of $4.5 billion over the next 4-5 years,” she adds.
Due to the positive 3Q numbers, Cai has raised her FY2020F EBITDA to $336 million and FY2021F-2022F EBITDA by 21-24%.
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She also expects Genting Singapore to resume distributing dividends, with a “likely dividend of 2 cents/share” on its improving prospects, which include the returning of tourists and positive vaccine news.
“In our worst case scenario, where we assume tourism does not resume in the medium term, we still expect 3Q numbers to prevail,” says Cai, who maintains her annualised EBITDA projection of $500-600 million, but expects dividend payouts to cease.
“We believe the group will still have sufficient cash flows and cash on hand to fund its RWS 2.0 capex, but expect the Government to approve the capex delay should tourism not resume. Our intrinsic value then drops to 55 cents/share,” she adds.
For Maybank’s Yin Shao Yang, while Genting Singapore’s results performed better than expected, he has maintained his “hold” call, albeit with a slightly higher target price of 78 cents from 76 cents previously.
In Yin’s view, it is “not every day that [Genting Singapore] outshines Marina Bay Sands (MBS)” as RWS generated more EBITDA than MBS for the first time since 1QFY2011.
Genting’s 3QFY2020 core net profit has shot past the brokerage’s expectations as it was expected a net loss for the counter for the FY2020.
“Gleaning insights from MBS’ 3QFY2020 results, we gather that high margin slot machine gross gaming revenue or GGR (around 20-25% of GGR) did not fall much y-o-y as local gamblers had to gamble in Singapore as they could not cross into Malaysia to do so,” he notes.
On that, Yin has raised his FY2020e EBITDA estimate by 425% as he forecasts FY2021e mass market (tables and slot machines) GGR to fall 50% y-o-y (compared to the 70% decline previously). He has, however, kept his EBITDA estimates for FY2021e and FY2022e, as those figures were based on mass market GGR recovering to 75% and 100% of pre-Covid-19 levels respectively.
Shares in Genting Singapore closed 1.5 cents higher or 1.9% up at 82 cents on Nov 17.
