Genting Singapore - UOB Kay Hian 2020-02-11: Wuhan Coronavirus Spreading Fear

GENTING SINGAPORE LIMITED (SGX:G13)

Genting Singapore - Wuhan Coronavirus Spreading Fear

Genting Singapore (SGX:G13)'s share price has plunged by 10.5% since the Wuhan coronavirus outbreak. While the coronavirus effect should taper off by mid-year, Singapore’s gaming industry’s interim financial results will be badly infected due to its high dependency on foreign tourist (including mainland Chinese) arrivals.

Nevertheless, we retain our BUY call as downside is supported by dividends and our assessed trough value of S$0.80, and Genting Singapore’s Japan IR bid will be an eventual rerating factor.

Following the rapid hike in the number of coronavirus infection cases in Singapore, the Ministry of Health stepped up measures to contain the outbreak, and recently raised its Disease Outbreak Response System Condition (DORSCON) to Orange.
With mainland China tourists accounting for about 19.3% of Singapore’s 2019 foreign visitors, tourism and entertainment sector will undoubtedly take a hit.

Although there have not been historical precedents as Resort World Sentosa (RWS) was only opened in 2H10, after the H1N1 (Apr 09 to Aug 10) and SARS (Nov 02 to Jul 03) outbreaks, short-term visitation to RWS has undoubtedly plummeted, and deeply negatively impacted 1H20 earnings.
Nevertheless, we expect a speedy recovery in 2H20, as swift government reactions and precautions globally should shorten the contagion period. Note that the coronavirus is also not as virulent as SARS, given the much lower fatality rate of 2.2% vs SARS’ 9.6%.
Our scenario analysis indicates that interim earnings could fall at an annualised rate of 20-44% until the disease is contained.

Our assessment assumes various periods of duration with constant assumptions:
1. 50/50 split in VIP:mass market GGR for 1H/2H20 (1H18: 40:60),
2. GGR declines 30% y-o-y in the infected quarters, with GGR declining 15% y-o-y in the subsequent one quarter, and
3. non gaming revenue falling at a similar percentage to the fall in visitorship.
This GGR decline assumption factors in Singapore’s Greater China (China, Macau, Hong Kong, Taiwan) tourist arrival that accounted for about 24.3% of 2019’s total tourist arrival.
Our sensitivity analysis suggests that Genting Singapore’s EBITDA may decline between - 12% and -39% for 2020. See attached PDF report for numbers.

By using similar assumptions, we expect non-gaming EBITDA to decline 22% by assuming 30% tourist cut from Greater China and other countries and the coronavirus to last for a six-month period. Recall that in 2003, SARS’ infection period on gaming industry in Macau and Malaysia only lasted for four months.

In the worst-case scenario, our assessed trough value on Genting Singapore is around S$0.80 based on 4.6x 2021F EV/EBITDA (-2SD below mean). Our trough valuation is supported by lush dividend yield of 4.4% and net cash backing of S$0.34/share.

In order to mitigate the impact and stimulate recovery in the tourism sector, we do not rule out the possibility of the government implementing a temporary cut on gaming duty as well as deferring the previous 50% casino entry levy hike attributed to local patronage.

We cut our 2020 EBITDA forecast by 28% as we input the impact of coronavirus outbreak in our forecasts, assuming the infection period on Singapore’s gaming industry lasts for six months. We maintain our 2021 forecast.

Maintain BUY with a lower target price. Our target price implies 8.5x 2020F EV/EBITDA (vs originally 7.6x) and prospective dividend yield of 3.7% (we expect Genting Singapore to maintain DPS of 3.5 S cents).
See Genting Singapore Target Price; Genting Singapore Analyst Reports; Genting Singapore Dividend History; Genting Singapore Announcements; Genting Singapore Latest News.
Positively, we expect Genting Singapore's share price to gradually recover, and look beyond the interim weak earnings as the Japan gaming concession RFP exercise reaches conclusion in 2H20.

Vincent Khoo CFA UOB Kay Hian Research | Jack Goh UOB Kay Hian | https://research.uobkayhian.com/ 2020-02-11

SGX Stock Analyst Report BUY MAINTAIN BUY 0.95 DOWN 1.110