Genting Singapore - OCBC Investment 2020-08-07: Recovery Hinges On International Travellers


Genting Singapore - Recovery Hinges On International Travellers

  • Well-expected loss amid circuit breaker.
  • Absence of dividend a disappointment.
  • Breakeven unlikely without international traffic.

Genting Singapore's Negative EBITDA in 2Q not unexpected.

  • Due to the circuit breaker in Singapore, RWS suspended operations since 6 April and has partially re-opened from 1 July. Gaming and non-gaming revenue declined 98% and 75% q/q respectively.
  • With minimal traffic and revenue in 2Q, Genting Singapore (SGX:G13) recorded a loss of SGD85mn before interest, depreciation and amortisation (LBIDA) despite approximately 30% lower operating expenses compared to pre-crisis levels. As a result, it recorded a net loss of SGD163mn (1Q: net profit of SGD47mn), including a non-operating loss of SGD46.8mn (1Q: SGD6.6mn). This is in line with the broad travel and entertainment industry decline around the globe during the Apr-Jun period.

Absence of interim dividend is a disappointment.

  • Given the uncertainty of the macro environment and recovery path, Genting Singapore did not declare an interim dividend in 1H20 (1H19: SGD0.015/share), despite its net cash position. While this is a rational business decision, it is likely a disappointment to the market.
  • With COVID cases re-emerging around the globe along with economies re-opening, business normalisation might take longer than expected. We expect Genting Singapore to resume dividend payouts only when there is more visibility of a recovery, which might not be until early next year.

International travelers are key for EBITDA breakeven.

  • Management’s tone on its outlook is cautious. International travelers accounted for 75-80% of total traffic to RWS pre-crisis and is therefore critical for breakeven. Although some business travel between China and Singapore has gradually resumed as the outbreak subsided, leisure travel might take longer to recover.
  • Despite the pent-up demand from local traffic (20-25% of traffic pre-crisis), it is not enough as casinos can only open for loyalty members and social distancing measures limit capacity. Theme parks and attractions also must reopen along with casinos – therefore management believes it is unlikely to breakeven before international traffic resumes.
  • Due to the longer-than-expected impact from the pandemic, we trimmed Genting Singapore’s FY20/21e EBITDA by 87%/40% and lowered our price target to SGD0.68 (from SGD0.83) which is based on 8x FY21 EV/EBITDA.
  • See Genting Singapore Share Price; Genting Singapore Target Price; Genting Singapore Analyst Reports; Genting Singapore Dividend History; Genting Singapore Announcements; Genting Singapore Latest News.

OCBC Research Team OCBC Investment Research | https://www.iocbc.com/ 2020-08-07
SGX Stock Analyst Report HOLD DOWNGRADE BUY 0.68 DOWN 0.830