The team at RHB Group Research has kept its “buy” rating on Genting Singapore with an increased target price of 95 cents from 90 cents.
The new target price is based on an EV/EBITDA of 8.5x from 7.9x previously, with a 2% environmental, social and governance (ESG) discount based on an ESG score of 2.9.
“The higher multiple reflects Genting Singapore’s better and more certain prospects, as Singapore begins to treat Covid-19 as an endemic, reducing the probability of more future strict lockdowns,” writes the team in its April 8 report.
Genting Singapore is likely to benefit from the increased reopening of international borders, especially in a bid to revive Singapore’s tourism industry, in light of the government setting aside nearly $500 million as part of funding and a tourist incentive scheme. The group has already noted that the number of visitors has improved since April 1 as well.
“We believe the pent-up demand for international travel will drive the return of tourists from Genting Singapore's traditional markets in Asean and Northern Asia, which account for approximately 60-70% of its visitor numbers prior to the pandemic,” says the team.
Furthermore, the return of business tourists, from the government's efforts to attract more meetings, incentive travel, conferences and exhibitions (MICE) events, may also have a positive spillover effect on Genting Singapore, which should lift the group’s gross gaming revenue and earnings ahead.
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In addition, expansion plans for Resorts World Sentosa, also known as RWS 2.0, is said to be ready in 2025, following the delay caused by Covid-19. At this juncture, Genting Singapore has spent $900 million on the project, and earmarked $400 million in capex for 2022.
At the same time, potential cost escalations due to the surge in construction cost may lift its $4.5 billion guidance. “We note that the majority of the costs will likely be backloaded in 2HFY2024 ending December 2024 and FY2025,” says the team. “While plans for funding are not set in stone, Genting Singapore will likely tap on internal resources and cash balance of net cash: $3.1 billion for 4QFY2021 for this.”
With the cancellation of Yokohama’s bid on its integrated resort plans, of which Genting Singapore was seeking to be a part of, the team notes that Genting Singapore will gradually strive towards a pre-pandemic dividend per share (DPS) of 4 cents, given its healthy net cash pile of 38 cents per share.
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“Nonetheless, given the unpredictable recovery path, we conservatively estimate DPS at 2-3 cents for FY2022-FY2023 but do not rule out further upside should the recovery outlook become clearer,” says the research team.
Some key risks the research team considers include possibility of re-closure of borders and broader regulatory risks.
On a whole, as Singapore begins to treat Covid-19 as endemic, the research team is positive on Genting Singapore, in consideration of its two-year earnings CAGR of 92%, driven by the return of international tourists and potential upside in dividends. “While Genting Singapore’s recovery play is well-documented, we believe investor interest in the stock may pick up once earnings recover,” says the team.
As at 10.34am, shares in Genting Singapore are trading at 1 cent lower and 1.23% down at 80 cents.
