Genting Singapore 3Q20 - UOB Kay Hian 2020-11-16: At The Forefront Of Reopening-Theme Play; Upgrade To BUY

GENTING SINGAPORE LIMITED (SGX:G13)

Genting Singapore 3Q20 - At The Forefront Of Reopening-Theme Play; Upgrade To BUY

Genting Singapore’s quarterly business overview for 3Q20 revealed significant earnings beat as the quarterly recoveries of gaming revenue and EBITDA were better than expected, and well ahead that of rival Marina Bay Sands’ (MBS).
The likelihood of vaccine(s) being approved (eg Pfizer-BioMTech’s vaccine) suggests market outperformance for Genting Singapore through 2021. More glimmers of hope are appearing as the government mulls over border relaxation.
Upgrade Genting Singapore to BUY with higher target price.

Genting Singapore (SGX:G13)’s 3Q20 results disclosure revealed that Resort World Sentosa’s (RWS) gaming revenue and EBITDA recovered 3,100% and 199% q-o-q to S$213m and S$130m respectively, significantly beating consensus expectations. While revenue and EBITDA plunged 50% and 46% y-o-y respectively, the figures were more resilient than MBS’ 65% and 84% y-o-y plunge in revenue and EBITDA. We estimate that RWS’ market share in terms of Singapore’s gaming revenue rose to 44%.
Gaming revenue recovered close to two-thirds of pre-pandemic levels with the surprising resilience being attributed to the mass market and local patronage. While Genting Singapore’s business overview did not provide details, we reckon that the recovery was mostly driven by local patronage (Singapore’s border remained closed in 3Q20), and win percentage in the VIP segment was within theoretical levels.
We also reckon that Singapore’s reciprocal green lane arrangements with China and other countries did not create much spillover effect. For its non-gaming segment, revenue fell 74% y-o-y as expected due to international travel impediments.

The recent positive revelation of Pfizer-BioMTech’s vaccine’s high efficacy has created hopes that a WHO-endorsed vaccine would be approved and widely dispensed by mid-21, thus allowing borders to be opened. We also anticipate more doses of positivity on more travel bubbles as Singapore mulls more border relaxation with some neighbouring countries.

Despite international borders remaining sealed in 3Q20 and gaming capacity being limited at 50% due to stringent social distancing set-ups, RWS’ gaming volume recovered by 3,100% q-o-q to about two-thirds of the pre-pandemic level. The recovery was mostly driven by the local mass market, and we understand that the VIP win rate was within the theoretical range.
With the impressive recovery, RWS has regained market leadership in the Singapore gaming market for the first time in many years, wresting the pole position from the more foreign patron dependent MBS (see the quarterly peer comparison between RWS and MBS in PDF report attached below).

Despite Universal Studios Singapore and S.E.A. Aquarium having recommenced operations since July, GENS’ non-gaming revenue plummeted 74% y-o-y in 3Q20, due to border closure and capacity limitation (to one-third of pre-pandemic capacity).
Our view is that the non-gaming segment would take a longer time to recover as the large reduction in the number of travellers from neighbouring countries have affected ticket sales, hotel occupancy and F&B significantly. Nevertheless, gradual implementation of travel bubbles will boost foreign footfall and provide better recovery from 4Q20 onwards.

Singapore’s government recently announced that it has reopened its border to China and Australia early November. Adding this to list, Singapore has now implemented travel arrangements with several neighbouring countries, including:
1. unilateral borders opening to Brunei, New Zealand, Vietnam, Australia and China;
2. green lane arrangements for essential purposes with Japan, Malaysia, South Korea, Germany, Indonesia, China; and
3. bilateral air travel bubbles without the need to be quarantined with Hong Kong.
With the ongoing relaxation of COVID-19 travel restrictions, Genting Singapore is set to benefit from better foot traffic of inbound travellers.

Positively, Genting Singapore could gain significant cost savings of about S$143m from the government’s stimulus, including the Jobs Support Scheme which has been extended to Mar 21 (total 17 months of wage coverage), 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.
Genting Singapore will also benefit from the S$320m SingaporeRediscovers vouchers set aside by the government for Singaporeans to support local tourism.

Despite the recent withdrawals of most US bidders such as Las Vegas Sands, citing non-viable regulatory framework, Genting Singapore appears keen in pursing 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.
Previously, Genting Singapore had also expressed interest to participate in the Tokyo bid when it is rolled out. However, bidding for the Japan IR license will not be seen as a positive given the high capex commitment and Japan regulators’ overly stringent regulatory framework.

We lift our Genting Singapore's 2020 net profit forecasts by 110% (from losses) to mainly reflect the stronger local patronage, but maintain our 2021-22 forecasts which already assume significant border reopening and substantial earnings recovery.
See Genting Singapore Share Price; Genting Singapore Target Price; Genting Singapore Analyst Reports; Genting Singapore Dividend History; Genting Singapore Announcements; Genting Singapore Latest News.
Upgrade Genting Singapore to BUY with higher target price as Genting Singapore is a proxy to economic reopening thematic investment and WHO-endorsed vaccine find. Our target price implies 10x 2021F EV/EBITDA (mean) and prospective dividend yield of 4.1%.

Vincent Khoo CFA UOB Kay Hian Research | Jack Goh Tooan Orng UOB Kay Hian | https://research.uobkayhian.com/ 2020-11-16

SGX Stock Analyst Report BUY UPGRADE HOLD 0.98 UP 0.690