Genting Singapore - RHB Invest 2020-03-20: Write-Off 2020, Look Forward To 2021; Upgrade To BUY


Genting Singapore - Write-Off 2020, Look Forward To 2021; Upgrade To BUY

  • Genting Singapore (SGX:G13) issued a profit guidance – 1H20 results to be adversely impacted by the COVID-19 outbreak. While this could pose more downward pressure to share price in the near term, we see value at current prices as it has a strong war chest of SGD3.7bn to help to tide through this period.
  • We expect earnings to rebound in FY21F once this epidemic blows over.
  • Upgrade to BUY from Neutral with new Target Price of SGD0.64 from SGD0.85, 26% upside plus c.8% yield.

Profit guidance was expected.

  • Genting Singapore highlighted that it has experienced a significant decrease in visitors across all its facilities. Our ground checks further suggest that the hotel industry occupancy rate is at c.30% given the recent drop in tourist arrivals.
  • With the continuing spread of COVID-19 around the world, we now think travel restrictions are likely to be in place until sometime in July-August this year. But we do expect tourist arrivals and Genting Singapore’s revenue to recover sharply post 4Q20F on the back of pent-up demand.

Cost control measures in place.

  • Genting Singapore is looking to streamline its workforce and improve productivity. It has effected cut on payrolls to reduce its fixed costs – non-executive directors’ fees are reduced by 15% for 1Q20, executive directors’ base salary reduced by 18% while base salary for managerial staff is lowered by 9-18%. Employees are encouraged to clear their annual leave or take no-pay leave during this period.
  • Genting Singapore is also using this period to renovate its hotels and attractions to draw more visitors once the COVID-19 outbreak blows over.

Write-off 2020 but 2021 would make a comeback.

  • We expect FY20F earnings to decline significantly as a result of the virus outbreak. We project the impact of COVID-19 to taper down sometime in August and tourism to recover in 4Q20. As such, we cut our topline by 44% in FY20F.
  • With cost control measures in place, our FY20F EBITDA and PATMI fall by 57% and 86%. We raise FY21F-22F revenue by 4% and 2% due to more pent up demand. This in turn increases our FY21F-22F EBITDA by 10% and 7% and PATMI by 13% and 10%.

Value buy.

Juliana Cai RHB Securities Research | https://www.rhbinvest.com.sg/ 2020-03-20
SGX Stock Analyst Report BUY UPGRADE NEUTRAL 0.64 DOWN 0.850