Maybank Securities has upgraded its call to “buy” on Genting Singapore with a higher target price (TP) of 85 cents on the back of Marina Bay Sands (MBS) posting “encouraging” 2QFY2022 results.
Las Vegas Sands, which owns and operates MBS, released the results yesterday, which saw MBS bringing in an EBITDA of US$319 million ($443.5 million), which was bolstered by a high VIP win rate of 4.29%. Even when adjusted for a normal VIP win rate, the resort’s EBITDA for the 2QFY2022 stood at US$278 million, which is still the highest since the Covid-19 pandemic began.
To analyst Yin Shao Yang, MBS’s results are “significant” as they represent operations in Singapore after the city-state reopened its borders on April 1 and removed Covid-19 testing requirements on April 26.
“Our read of MBS’s 2QFY2022 results is positive for Genting Singapore’s Resorts World Sentosa (RWS). Operations recovered faster than expected even without Chinese gamblers,” says Yin in his July 21 report.
With these results, Yin has raised his estimated FY2022 earnings for Genting by 78%. Genting Singapore will report its 2QFY2022 results on Aug 12.
Citi Investment Research has also taken MBS’s 2QFY2022 earnings results as a “positive surprise” for the market, and expects RWS to enjoy a similar recovery for the same quarter. Citi analysts George Choi and Ryan Cheung have maintained their “buy” call on Genting Singapore with an unchanged TP of $1.01.
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OCBC Investment Research has read these results similarly, maintaining its "buy" rating for Genting Singapore while raising its TP to 92 cents from 90 cents previously. Analyst Chu Peng says that barring risks of a spike in Covid-19 cases and a recession, she expects a "sequential improvement" for Genting Singapore in 2QFY2022, as seen with the recovery experienced by MBS.
While Maybank’s Yin warns investors not to draw identical comparisons between MBS and RWS — the latter likely ceded market share to pre-Covid levels as Singapore reopened its borders — he says that Maybank has gathered that 2QFY2022 ought to be “sequentially much better for RWS”, explaining the lift of earnings estimates to account for RWS’ earlier recovery from 3QFY2022 to 2QFY2022.
“While our long-term earnings estimates are little changed, there is room for positive earnings revisions if China eases its zero-Covid policy. We tweaked our discounted cash flow-based TP to 85 cents from 83 cents,” writes Yin, adding that the upgraded call comes as Genting’s upside potential now stands at over 10%.
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Meanwhile, the Citi analysts have “conservatively” forecasted Genting Singapore to report a 2QFY2022 EBITDA of $179 million, implying a recovery of around 61% of its pre-pandemic levels.
Despite the inflated earnings, MBS’ underlying operations are recovering fast, says Yin, adding that MBS’ 2QFY2022 VIP volume and mass market (gross gaming revenue) GGR recovered to 75% and 92% of 2QFY2019 levels respectively, largely due to the return of Malaysian and Indonesian gamblers.
“Though a quarter earlier than we expected, they are broadly in-line with our expectation that industry VIP volume and mass market GGR will recover to 75% and 85% of 2019 levels in the long term. LVS stated that gaming operations will not return to 100% of 2019 levels until China relaxes its zero-Covid policy,” writes the Maybank analyst.
Choi and Cheung agree, saying that while Citi management still sees Mainland Chinese as an important customer group, they have not yet been able to return. However, there is plenty of “pent-up demand” from other important markets, such as Malaysia and Indonesia, they add.
Chu also notes that Genting Singapore has commenced constructions works on both Minion Land and the Singapore Oceanarium in 2QFY2022 with a targeted opening date in 4QFY2024, which she believes Genting Singapore is in a "healthy financial position" to meet, with its net cash position of $3.1 billion as of December 31 2021. With Genting Singapore's management also likely to review its dividend policy to reward shareholders, Chu expects a full year dividend of 2 cents per share in 2022.
While Maybank’s FY2023 and FY2024 earnings estimates have not changed significantly, there is room for positive revisions should China ease its zero-Covid policy, says Yin.
As at 2.26pm, shares in Genting Singapore were trading at 81 cents or 4.52% up.
