SINGAPORE (Feb 11): Genting Singapore (GENS) appears to be one of the companies badly hit by the outbreak of the novel coronavirus (2019-nCoV). Since Jan 20, the counter has plunged 9.5%.
Market watchers opine that the city state’s gaming industry is one of the sectors that could bear the brunt of the virus due to its high dependency on foreign tourist arrivals, including tourists from mainland China.
As of Feb 11, Singapore has 45 confirmed cases, making it the country with the second most number of infected patients outside of China. It had also recently raised its Disease Outbreak Response System Condition (DORSCON) level to Orange in a bid to contain the outbreak.
In a Tuesday report, UOB Kay Hian lead analyst Vincent Khoo shares that with mainland China tourists accounting for some 19.3% of Singapore’s 2019 foreign visitors, sectors such as tourism and entertainment will undoubtedly “take a hit.”
The way Khoo sees it, GENS has to brace for steep falls in both its earnings and share price, similar to the SARS and H1N1 outbreaks in 2003 and 2009 respectively.
“Short-term visitation to Resorts World Sentosa (RWS) has undoubtedly plummeted, and deeply negatively impacted 1H20 earnings,” says Khoo.
In the worst case scenario, Khoo envisions a 50-50 split in the group’s VIP gambling segment, a 30% y-o-y decline in gross gaming revenue (GGR) in the infected quarters, as well as a dip in non-gaming revenue proportionate to the fall in visitorship.
“This GGR decline assumption factors in Singapore’s Greater China (China, Macau, Hong Kong, Taiwan) tourist arrival that accounted for about 24.3% of 2019’s total tourist arrival,” shares Khoo.
Khoo notes that while GENS’ Ebitda may decline between 12% and 39% for FY2020, investors should look past the interim results and await a “speedy recovery” in 2HFY2020 on the back of swift government reactions and precautions on a global level.
For the group’s non-gaming Ebitda, Khoo expects a y-o-y decline of 22%, assuming a 30% tourist cut from Greater China and other countries for a six-month period.
“In order to mitigate the impact and stimulate recovery in the tourism sector, we do not rule out the possibility of the [Singapore] government implementing a temporary cut on gaming duty as well as deferring the previous 50% casino entry levy hike attributed to local patronage,” says Khoo.
While the brokerage has cut its FY2020 Ebitda forecast for the group by 28% to factor in the impact of the virus, it is maintaining its FY2021 forecasts as it expects the group’s Japan integrated resort (IR) bid to be an eventual re-rating factor.
“Positively, we expect GENS’ share price to gradually recover, and look beyond the interim weak earnings as the Japan gaming concession request-for-proposal (RFP) exercise reaches conclusion in 2HFY2020,” says Khoo.
UOB is maintaining its “buy” call on Genting Singapore, but has trimmed its target price to 95 cents from the previous $1.11.
As at 10.58am, shares in Genting Singapore are trading one cent higher, or 1.2% up, at 86 cents. This implies a price-to-earnings (P/E) ratio of 19.2 times and a dividend yield of 4.1% for FY2020F, according to UOB valuations.
