Genting Singapore - DBS Research 2020-02-13: Forget The Short-Term Pain


Genting Singapore - Forget The Short-Term Pain

  • Genting Singapore (SGX:G13)'s 4Q19 adjusted EBITDA met expectations.
  • Final dividend bumped up to 2.5Scts/share, bringing FY19 dividend to 4.0Scts; attractive 4.6% yield.
  • Outlook appears bleak over the next two quarters, but we are positive on a speedy turnaround in 2H2020.
  • Maintain BUY.

In line quarter; virus impact ahead expected

4Q19 adjusted EBITDA of S$288m (-2% y-o-y, +3% q-o-q) met expectations.

  • 4Q19 was another lucky quarter for Genting Singapore, as its VIP win rate of 3.4% (vs historical average of 2.8-2.9%) tempered slight weakness in VIP (rolling chip volumes -2.2% y-o-y) and mass gaming volumes (non-rolling drop and slot handles: -3.3% y-o-y).
  • On a hold-adjusted basis, adjusted EBITDA would have been S$260m (-5% y-o-y, +12% q-o-q).

Surprise uplift in final dividend

  • Surprise uplift in final dividend to 2.5Scts/share (vs 2.0Scts/share a year ago), bringing total dividends in FY19 to 4.0Scts/share, for an implied forward yield of 4.6%. This was a pleasant surprise, as we had initially anticipated dividends to be flat amid the challenging operating environment. See Genting Singapore Dividend History.
  • Furthermore, the management reiterated their commitment to reward shareholders, and appeared confident of sustaining dividends at this level.

Bad debts under control; anticipate slightly lower run-rate going forward.

  • Impairment of trade receivables of S$17.7m in 4Q19 came in below our expectation of S$20m. Credit impairments should be lower than the usual run-rate in the next two quarters, consistent with lower VIP volumes following the ban on Chinese tourists.

Operating cash flows continue to be robust, net cash level rises.

  • In line with Genting Singapore’s operating performance, 4Q19 operating cash flow of S$313m was down slightly (-11% y-o-y, +30% q-o-q).
  • On the balance sheet, Genting Singapore’s net cash position grew to S$3.7bn, up S$280m from the previous quarter.

Outlook and Recommendation

Novel Coronavirus (COVID-19) will have a considerably negative impact on near-term earnings; slashing FY20 EBITDA estimate.

  • Our base case now assumes
    • the COVID-19 episode peaks in early-mid 2Q2020, and
    • as observed from trends during the SARS virus and other pandemics, pent up consumer spending and travel demand should swiftly materialise shortly after.
  • While our FY21F EBITDA remains intact, we revised FY20F EBITDA down by 20% to reflect the following:
    • Singapore has effectively banned all mainland Chinese passport holders from entry into or transit through Singapore. Genting Singapore’s top line will take a considerable hit as Chinese tourists account for around 20% of Singapore’s tourism receipts (as at 1H2019). Additionally, VIP volumes should be hardest hit, given its elevated exposure to the Chinese market.
    • Our economists recently downgraded Singapore’s 2020 real GDP forecast to 0.9% from 1.4% previously. We believe local consumer spending will continue to be soft in the near-term and translate into lower local visitors to the casino and Genting Singapore’s attractions. Furthermore, 1Q2020 will still be adversely impacted by the levy hike which was implemented in 2Q2019.
    • In the meantime, Genting Singapore 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.

FY2021 prospects remain positive; maintain BUY with lower target price.

  • We believe the pain inflicted on Genting Singapore’s earnings will be short-lived. The stock has corrected by 6.9% (see Appendix2 in attached PDF report) since the onset of COVID-19, and the number of new cases (see Appendix4 in attached PDF report) appears to be petering out, which suggests that COVID-19 could peak as early as March and be over ahead of our expectations.
  • Although Genting Singapore has held up slightly better than its regional peers, it remains unjustifiably deeply undervalued relative to them, with the stock trading at 6.3x EV/EBITDA (FY21F) against the regional peer median of 9.9x.
  • Downside should be limited from here, with the stock trading at around -1.3SD below its historical mean, and potential relief measures by the Singapore government kicking in shortly.
  • Additionally, the Japan IR re-rating catalyst is right around the corner, and investors can enjoy an attractive dividend yield while waiting.
  • See Genting Singapore Share Price; Genting Singapore Target Price; Genting Singapore Analyst Reports; Genting Singapore Dividend History; Genting Singapore Announcements; Genting Singapore Latest News.

Jason SUM DBS Group Research | https://www.dbsvickers.com/ 2020-02-13
SGX Stock Analyst Report BUY MAINTAIN BUY 1.10 DOWN 1.200