Genting Singapore - DBS Research 2020-08-07: Wait For Signs Of Leisure Travel Restarting


Genting Singapore - Wait For Signs Of Leisure Travel Restarting

  • Genting Singapore's 2Q20 adjusted EBITDA was lowest on record.
  • No interim dividend announced; cut FY20F dividend per share estimate to 2.5Scts/share.
  • Outlook remains bleak as GENS will struggle to break-even on an EBITDA basis with just the local crowd.

Not time to buy into the tourism turnaround story.

  • Genting Singapore (SGX:G13)’s losses in 2Q20 did not come as a surprise, but we were caught off guard by the suspension of its interim dividend.
  • We are cutting our FY20/21F earnings before interest, taxes, depreciation and amortisation (EBITDA) estimates on Genting Singapore for the fourth time this year, this time by another 86%/13%; our new projections are now 96%/48% lower compared to pre-COVID19 estimates.
  • Despite the brutal hit to its earnings, we believe downside from hereon is limited due to Genting Singapore’s attractive valuation – the stock is only priced at 7.3x EV/EBITDA (FY2021F), which is around one standard deviation below its five-year average, and considerably lower than the regional peer median of 11.8x.
  • We maintain our neutral stance on the stock until we can see a credible path to earnings recovery, which will largely be predicated on the successful development of a vaccine, or the
    1. COVID-19 situation stabilising regionally, and
    2. loosening of cross-border travel restrictions between Singapore and other countries and social distancing practices domestically.

The worst may be over, but brace for slow recovery

  • Genting Singapore reported losses before interest, taxes, depreciation and amortisation of S$84.9m in 2Q20, its first quarterly loss since listing, bringing 1H20 adjusted EBITDA to S$66.7m. Losses in the quarter was not a surprise, given that Genting Singapore had to endure a zero-revenue environment. However, the magnitude would have been more pronounced if not for various support measures by the government, like the Jobs Support Scheme and property tax rebates.
  • Net cash position of S$3.49bn (S$0.30/share), down from S$3.69bn as at Dec-2019. Genting Singapore managed to book positive operating cash flow of S$31m in 1H2020, despite suffering significant cash burn in 2Q20.

No interim dividend.

  • To our surprise, Genting Singapore will not be paying out an interim dividend this year (vs 1.5Scts/share in 1H19) but stated that the company would declare a final dividend barring any unforeseen circumstances.

Other updates – No further updates on Japan

  • Genting Singapore is still waiting for the launch of the Request-for-Proposal (RFP) phase in 2H2020 in Yokohama City. RWS2.0 expansion will be delayed - the management has no clarity on the new timeline, but highlighted that land purchase payment of c.S$1bn will be made in 2H20.


Slash FY20F and FY21F EBITDA estimates by 87% and 12% to S$46m and S$670m respectively to reflect the following:

  • Leisure travel to Singapore appears unlikely for the rest of 2020. We had initially expected a gradual easing of travel restrictions between Singapore and countries that have successfully contained COVID-19. However, the National Development Minister recently announced that Singapore’s travel advisory position is to avoid all travel in the foreseeable future. This is particularly devastating for Genting Singapore, given that RWS has an inordinately high exposure to international tourists, with tourists typically accounting for 75-85% of total attendance. Green lane arrangements with other countries like China and Malaysia to enable business travel will have minimal impact, in our view, as the traveler coming in via a reciprocal green lane would have to follow a very strict and controlled itinerary.
  • Genting Singapore cannot breakeven solely from domestic demand. The management shared that Genting Singapore will not breakeven with attendance at 20-25% of pre-COVID19 levels, even after pulling all levers to achieve a 25-30% reduction in cash operating costs, and additional partial savings from government support schemes. Pent-up demand by domestic consumers can only do so much to offset the absence of tourists.
  • COVID-19 will remain a drag well into 2021. Although the world has made commendable strides on the vaccine front, we believe that it will take an extended period for travel activity to normalise, given the wave of bankruptcies/downsizing of capacity in the travel sector. Additionally, stringent social distancing requirements will likely stay in place, which effectively limits the capacity in Genting Singapore’s casino to 50%, and capacity for non-gaming attractions to 25-30%.

Cut FY20F and FY21F DPS to 2.5Scts/share

  • Cut FY20F and FY21F DPS to 2.5Scts/share, down from 4.0Scts/share, for an implied 3.5% yield, which is in line with Genting Singapore’s historical dividend yield. We believe that there could be upside to our DPS estimates if Genting Singapore decides to drop out of the Japan Integrated Resorts race.

Maintain HOLD with a lower Target Price of S$0.70, to reflect our negative earnings adjustment.

Jason SUM DBS Group Research | https://www.dbsvickers.com/ 2020-08-07
SGX Stock Analyst Report HOLD MAINTAIN HOLD 0.70 DOWN 0.750