Genting Singapore - UOB Kay Hian 2020-08-07: All Eyes On Decision On Japan Bid

GENTING SINGAPORE LIMITED (SGX:G13)

Genting Singapore - All Eyes On Decision On Japan Bid

Genting Singapore's 2Q20 results are within expectations, with revenues plunging 94% y-o-y as RWS operated for only one week to comply with the government’s circuit breaker.
As the operational outlook remains grim amid Singapore’s shuttered travel borders and RWS’ reduced gaming capacity, the only uplifting potential for Genting Singapore is deemphasizing its pursuit of the Japan IR concession (unless Japan improves the concession terms) and focusing on capital management.

As expected, Genting Singapore (SGX:G13) reported a depressed 2Q20 adjusted EBITDA of S84.9m losses (-94% y-o-y, -90% q-o-q), and a net loss of S$163.3m. The results were consistent with market leader MBS’ earlier released results.

Surprisingly, Genting Singapore did not declare any interim DPS (2Q19: 1.5 S cents), mainly due to operational losses in this quarter. Nevertheless, we expect Genting Singapore to substantially sustain its 2020 dividends at 2019 level.

Overall, 1H20 has been a wipe-out period for Genting Singapore as the plunge in 1Q20 revenue due to lower international patronage has deepened in 2Q20, with Resorts World Sentosa (RWS) only operating for one week to comply with the government’s mandatory circuit breaker measures. This is highly unfortunate for the foreign tourist-dependent RWS, which has already suffered deeply from lockdowns imposed in other countries early this year.

While RWS has reopened in July with Universal Studios Singapore, S.E.A Aquarium and the casino back in business, we remain cautious on its 2H20 outlook due to lingering uncertainty that visitors and earnings could plummet y-o-y and take time to normalise.
Meanwhile, a prolonged lockdown, international travel impediments, tightening borders restriction or further escalation of the COVID-19 outbreak remain key risks to earnings.

As Singapore’s borders remain restricted, near-term revenue recoveries will be painfully slow. Currently, gaming volume is only supported by local patronage ( < 50% of 2019 gaming revenue) as entry into its casino is limited to Genting Reward card members and annual levy holders.
Stringent social distancing set-ups and limitations of gaming capacity at 25% are also impacting non-gaming ticket sales, casino rolling chip volumes, hotel occupancy and the F&B segment.

Positively, Genting Singapore could gain significant cost savings of about S$91m from the government’s stimulus and job support schemes, including tax savings of about S$20m from the 60% property tax rebate granted by the government in previous Resilience and Solidarity Budgets, and additional savings of S$2.6m from foreign worker levy waiver & rebates.

Despite the COVID-19 impact and recent withdrawals of many US bidders such as Las Vegas Sands (citing non-viable regulatory framework), GENS appears to remain in pursuit of the Japan integrated resort (IR) concession (Yokohama).
Yokohama’s Request for Proposal (RFP) process has been delayed till further notice as it has been disrupted by the COVID-19 pandemic. Genting Singapore will also participate in Tokyo’s bid when it is rolled out. However, bidding for the Japan IR licence during this challenging period does not seem compelling as the high capex commitment coupled with stringent regulatory framework diminishes the attractiveness of the Japan IR. Recall our view that pursuit of the Japan gaming concession could be financially punitive.

We further cut 2020-21 net profit forecasts cumulatively by 123% and 35% to reflect the earnings shortfall from reduced gaming capacity and slower recovery in foot traffic due to international travel impediments (we had previously expected the shortfall of visitors to be small at < 10% pre-lockdown footfall).
We are now forecasting Genting Singapore to report 2020 net loss of S$176.9m (vs S$59m net profit previously).

Vincent Khoo CFA UOB Kay Hian Research | Jack Goh Tooan Orng UOB Kay Hian | https://research.uobkayhian.com/ 2020-08-07

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