Genting Singapore - UOB Kay Hian 2020-04-06: Worth Holding Out For

GENTING SINGAPORE LIMITED (SGX:G13)

Genting Singapore - Worth Holding Out For

The impact of COVID-19 pandemic, including Singapore’s surprise 1-month lockdown starting this Tuesday, has taken a much heavier financial toll on integrated resort operators.
Nevertheless, despite our steep earnings cut (-43%) and lower trough valuation of S$0.55 for 2020, our sensitivity analysis on Genting Singapore (SGX:G13) continues to suggest bargain-price valuation and highly favourable risk-reward dynamics for longer-term investors.

Singapore announced a one-month lockdown starting 7 Apr 20 in reaction to a sharp rise in Covid-19 infections. This is highly unfortunate for the foreign tourist-dependent Resorts World Sentosa, which has already suffered deeply from lockdowns imposed in other countries.
The latest events will further suppress foreign visitor numbers and the timing of recovery at RWS in 2020 on two counts:
1. Singapore will remain locked down when other Asean countries end their lockdowns by April; and
2. Singapore will still impose a quarantine period post lockdown.

We cut Genting Singapore’s 2020-21 net profit forecasts by 43% and 9% as we incorporate the latest financial impact of the drawdown and conservatively assume reduced travel patterns through to 1Q21.
Our 2021 forecast also take into account that patronage from neighbouring countries may not swiftly recover to pre-Covid-19 levels, given the inadequate fiscal stimulus responses by the respective governments.

While we brace for the shares to fall, it is improbable that shares will breach below this year’s low of S$0.51, which is already at a historical low and well below our revised trough valuation of S$0.55, which is now based on -2SD to EV/EBITDA or equivalent to financial crisis’ trough valuation levels.

We doubt Genting Singapore would fall into a new low and offer the following re-rating doses:
1. Genting Singapore maintaining good dividends in 2020, backed by net cash of 33 S cents /share;
2. successful flattening of the infection curve globally by 2Q20; and
3. a conjecture at this point that the Singapore government may allow integrated resort operators to stretch out the implementation of their mandated S$4.5b expansion plan.

For illustrative purposes, we simulated a scenario analysis for Genting Singapore on the coronavirus. Our assessment assumes various periods of duration with constant assumptions:
1. 50/50 split in VIP: mass market GGR for 1H/2H20;
2. GGR declines 50% y-o-y in the infected quarters, with GGR declining 20% y-o-y in the subsequent one quarter; and
3. non-gaming revenue falling at a similar percentage.
Our sensitivity analysis suggests Genting Singapore’s EBITDA may decline 43-77% y-o-y for 2020. See attached PDF report for details of sensitivity analysis.
Genting Singapore trading well below our just-reduced assessed fundamental trough of S$0.55 which assumes trough valuation of 4.6x 2020F EV/EBITDA (-2SD to historical mean). The trough valuation implies 2.4x 2021F EV/EBITDA.

Cash-flushed Genting Singapore now features an appealing dividend yield of up to 6.1%, and should sustain 3.5-4.0 S cents DPS in 2020-21 (2019: 4.5 S cents) despite sharply lower prospective earnings (yielding 5.5-6.1%). See Genting Singapore Dividend History.
In fact, Genting Singapore can still choose to maintain its DPS payout in 2020, given its net cash of S$3.95b (33 S cents/share), and there is still a possibility of it doling out a special dividend should it fail to win a Japan casino concession (results should be known by 2H20).

Maintain BUY with a deliberately conservative lower target price of S$0.80. Our target price implies 8.9x 2020F EV/EBITDA (-0.5SD below mean) and prospective dividend yield of 5%. See Genting Singapore Share Price; Genting Singapore Target Price; Genting Singapore Analyst Reports; Genting Singapore Dividend History; Genting Singapore Announcements; Genting Singapore Latest News.
There will be a substantial jump in our target price when we roll over our target to end-21.

Vincent Khoo CFA UOB Kay Hian Research | Jack Goh Tooan Orng UOB Kay Hian | https://research.uobkayhian.com/ 2020-04-06

SGX Stock Analyst Report BUY MAINTAIN BUY 0.80 DOWN 0.950