Analysts have been taking a second look at Genting Singapore following its swing into the black with earnings of $77.2 million in 1HFY21 ended June.
The group which owns and operates Resorts World Sentosa (RWS) had been in the red with losses of $116.7 million in 1HFY20 due to the circuit breaker measures imposed to curb the spread of Covid-19 infections.
See: Genting Singapore swings back into the black with earnings of $88.2 million for 1HFY2021
The latest “1HFY21 results exceeded our expectations but largely due to items which we opine are non-recurring in nature,” Maybank Kim Eng (MKE) analyst Yin Shao Yang writes in an Aug 13 note.
He adds that the group’s core net profit of $111.5 million makes up 65% of his FY21 estimate.
Agreeing, DBS Group Research analyst Jason Sum says the group’s 1HFY21 EBITDA (earnings before interest, taxes, depreciation and ammortisation) of $276.1 million forms 43% of his full-year projection.
However, Yin says that Genting Singapore’s 1HFY21 revenue of $555.8 million “was well within expectations” and forms 49% of his full-year estimate.
He notes that the group’s outperformance in its core net profit is thanks to: the Jobs Support Scheme grant of $34.8 million and bad debts of $24.7 million being written back.
Going forward, Yin says the focus is on the Genting Singapore’s bid for an Integrated Resort license in Yokohama.
As one of the two remaining candidates for the project, the management is confident of winning the bid, which will be announced in October.
However, analysts from RHB’s Singapore Research reckons that this dependent on the outcome of the Yokohama mayoral election which is slated to take place on Aug 22.
The group “stands a good chance of being selected as the private-sector partner to apply for the IR rights from central authorities (from Oct 2021 to Apr 2022)” should a pro-IR mayor be elected, the analysts write in an Aug 13 note.
Meanwhile, DBS’ Sum reckon that that group will benefit from the pent-up demand from locals as well as revenge spending when tourists return.
MKE’s Yin estimates that RWS’ 1HFY21 VIP volume and mass gross gaming revenue were flat h-o-h at $4.2 billion and $485 million respectively. This was despite a reduction in its operating capacity from 65% to 50% on May 4 and then to 25% on May 16.
Even so, revenue from the gaming segment in 1HFY21, was down 49% compared to that recorded in 1HFY19 when the local crowd constituted 20% of overall attendance.
“After an extended period of travel deprivation, we believe that tourists will unleash their pent-up demand when they finally start travelling again,” DBS’ Sum adds.
Meanwhile the analysts from DBS, RHB and MKE are expecting inbound tourism to resume towards the end of the year, in line with the rising vaccination rates. This would translate to higher participation at the group’s Integrated Resorts.
In line with this, the group will have a rise in its operating capacity limit to 50% on Aug 19.
To this end, Sum expects the mass gaming segment to normalise at a faster pace than the VIP division due to the protracted absence of Chinese VIP punters, whom they estimate accounted for around 50% of rolling chip volumes prior to the pandemic.
This prediction comes as the segment’s volume was down 7.6% in 1HFY21, compared to 1HFY19.
“Assuming that the Covid-19 pandemic does not deteriorate in Singapore, we expect Genting Singapore’s earnings outlook for 2HFY21 to be stable h-o-h,” says MKE’s Yin.
“There may even be upside to 4Q21 earnings as Singapore is scheduled to gradually reopen its borders by then after reaching herd immunity,” he adds.
Aside from welcoming more guests, the group is hopeful of commencing the construction of its RWS2.0 sometime in 2022.
While payment for the acquired land was made in 1HFY21, the completion of the project will likely extend to at least 2026.
DBS’ Sum, MKE’s Yin, RHB’s analysts and OCBC Investment Research analyst Chu Peng all have ‘buy’ calls on Genting Singapore.
Sum’s $1 target price is expected to give the group a 25% upside while Yin’s $1.16 call is slated to give a 47% upside.
Chu has penciled a fair value of 94 cents on the counter, thus giving it a 47% free float.
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Meanwhile, RHB analysts’ – who just upgraded their call from ‘hold’ to ‘buy’ have a 92-cent target price. This is expected to give the counter a 15% upside.
“The share price weakness in the past two months has prompted us to upgrade our recommendation to buy,” the analysts explain.
“We believe the earnings have found a new base, and the current valuation of 6.7x FY22F EV/EBITDA (-0.5SD) vs the regional peer average of 11x is an attractive proposition for investors to position for a strong FY22 earnings recovery, as more countries reach higher vaccination rates,” they add.
Shares in Genting Singapore closed flat at 80 cents on Aug 13.
Cover Image: file photo
