SINGAPORE (Feb 14): Since the onset of the Covid-19 virus, Genting Singapore’s (GENS) share price has fallen some 6.9% as investors feared the worst for the hospitality and entertainment sector.
But market watchers, who are cognisant of the longer-term view and value for the counter, are quick to tell both current and potential investors not to panic, but instead await a solid comeback in 2HFY2020.
To be sure, the group’s most recent set of results were largely in line with analysts’ expectations. GENS booked earnings of $155.9 million for 4QFY2019 ended December, some 4% higher than earnings of $150.2 million a year ago. However, despite the improved earnings in the final quarter, full-year earnings came in at $688.6 million, or 9% lower than FY2018’s earnings of $755.4 million.
Unsurprisingly, revenue for the quarter fell 9% to $607.2 million from $664.8 million in 4QFY2018. This was spearheaded by a 13% decline in revenue from the gaming segment of the group’s Singapore operations.
See: Genting Singapore posts 4% increase in 4Q earnings to $156 mil, full-year earnings lifted to $689 mil
But what stood out to brokerages such as DBS Group Research and RHB Group Research was the group’s final dividend of 2.5 cents per share for FY2019, an increase from the dividend of 2.0 cents per share paid out in FY2018.
“An unexpected bump in dividends was a pleasant surprise,” says DBS analyst Jason Sum in a Thursday report. “We had initially anticipated dividends to be flat amid the challenging operating environment.”
“Furthermore, the management reiterated their commitment to reward shareholders, and appeared confident of sustaining dividends at this level,” adds Sum.
Moving forward, RHB analyst Juliana Cai opines that there is a good chance of the group maintaining dividends at the current level, as the management had previously highlighted its desire to keep dividends consistent.
“We also believe it has adequate cash to maintain dividend payouts, despite an earnings blip in FY20F caused by the outbreak,” says Cai in a Thursday report.
Apart from dividends, analysts have identified catalysts for the stock in the form of government relief measures in the upcoming Budget, as well as the group’s venture into Japan by way of development bids for integrated resorts (IRs) in Osaka and YokoHama.
“There may be long term earnings upside if the 2020 Budget yields aid and relief for RWS. [We] recall also that GENS is bidding for an integrated resort license in Japan. As winners are expected to be announced in 2H20, more upside could be derived soon if GENS wins a bid,” says Maybank Kim Eng analyst Yin Shao Yang, adding that the downside risk to the group’s share price remains limited.
UOB Kay Hian analysts attest that the bids are poised to take centre stage in 2HFY2020, as GENS has a good chance of winning given its investment bid of more than $10 billion.
“While our valuation has conservatively not imputed an option value, we guesstimate that clinching an IR concession could lift discounted cash flow (DCF) by $1.5 billion,” say UOB analysts.
“GENS is also exploring securing a partnership with a local consortium to enhance their chances of winning the bids. Timeline-wise, GENS expects to submit its request for proposal (RFP) in 3QYF2020, and the concession award to be announced in 4QFY2020,” the brokerage adds.
Despite a rosy long-term outlook, analysts acknowledge that the virus is undeniably bound to have an impact on GENS’ financial and operational metrics in the near term amid an entry ban on all Chinese visitors and foreigners with a recent travel history to China. Accordingly, analysts have slashed their near term earnings per share (EPS) and EBITDA estimates.
The way RHB’s Cai sees it, this is likely to impact the bulk of GENS gamers, as some 20% of visitors that visit GENS’ attractions are also from mainland China.
“Travellers from other countries are also likely to avoid Singapore, given that it has the highest number of novel coronavirus cases outside of China. MICE activities at hotels are expected to decline. Currently, we assume the travel ban to last for a quarter,” says Cai.
DBS’s Sum expects the group’s VIP volumes to be hit the hardest, given its elevated exposure to the Chinese market.
Nevertheless, analysts are adhering to the famous “every cloud has a silver lining” theory, as they believe the group is poised for a strong turnaround.
“GENS will take the opportunity to accelerate the refurbishment of its hotels during the inevitable downturn and focus on driving its productivity initiatives and pulling other cost levers to keep its operating expense in check,” says Sum.
Sum also notes that positive points for the group include its attractive valuation relative to regional gaming peers, strong medium-long term growth prospects and sustainable 4.6% forward dividend yield supported by its robust operating cash flows and balance sheet.
UOB analysts, too, say that all is not lost for the group, as despite an obvious expected fall in patronage and hotel occupancy during the infected period, casino and outdoor facilities to are expected to maintain operations barring an escalation of the outbreak.
Although the group’s trademark Resorts World Sentosa attraction had not yet opened its doors during the SARS outbreak, UOB analysts note GENS’s price had rallied strongly on the back of RWS’s ramp-up during the H1N1 outbreak.
“We believe the pain inflicted on GENS’s earnings will be short-lived,” says Sum. “The number of new cases appears to be petering out, which suggests that COVID-19 could peak as early as March and be over ahead of our expectations.”
“Although GENS has held up slightly better than its regional peers, it remains unjustifiably deeply undervalued relative to them,” says Sum, adding that GENS is currently trading at 6.3 times EV/EBITDA (FY2021F) against the regional peer median of 9.9 times.
DBS, Maybank and UOB are maintaining their “buy” calls on Genting Singapore, with target prices of $1.10, 99 cents and 95 cents respectively. RHB is keeping its “neutral” call on the group, with a target price of 85 cents.
As at 1.58pm, shares in Genting Singapore are trading 0.5 cent higher, or 0.6% up, at 89 cents.
