GENTING SINGAPORE LIMITED (SGX:G13)
Genting Singapore - Positive EBITDA; Upgrade To NEUTRAL
- Genting Singapore's 3Q20 revenue and earnings beat our and market’s expectations.
- Genting Singapore booked an adjusted 3Q20 EBITDA of S$149m and net profit of S$54m – a sharp turnaround from 2Q20’s losses. The upgrade was on higher-than-expected gaming revenue of S$213m generated during the quarter. This represents 59% of last year’s figure despite the absence of tourists and capacity limitations. Hence, 3Q20 net profit forms the base line for earnings moving forward.
- Upgrade Genting Singapore to NEUTRAL from Sell with a higher S$0.72 target price from S$0.62, 4% downside and c.3% yield.
Brighter prospects following the strong base line formed in 3Q.
- 3Q20’s business update suggests that Genting Singapore (SGX:G13) is able to generate an annualised EBITDA of S$500-600m – even in the absence of tourist spending and capacity limitations.
- The positive operating cash flow generated, coupled with its existing net cash of S$3.6bn as at 30 Jun 20, gives confidence that Genting Singapore has sufficient capital to fund its Resorts World Sentosa expansion (RWS 2.0) mega capex of S$4.5bn over the next 4-5 years.
- While the higher-than-expected 3Q20 earnings could be due to pent-up local demand after a prolonged lockdown, school holidays, and easing capacity restrictions on attractions could help offset the absence of pent-up demand in 4Q20.
- We note that Genting Singapore’s casino is now open to all guests from 9 Oct, while other tourist attractions could raise operational capacity to 50% from 18 Sep.
Change in forecast and target price for Genting Singapore.
- In view of the positive 3Q update, we raise our Genting Singapore's FY20F EBITDA to S$336m and FY21F-22F EBITDA forecast by 21-24%.
- We assume borders will gradually reopen, with tourists returning to 50% of pre-COVID-19 levels by 4Q21. This raises our target price to S$0.72 based on an 8x FY21F EV/EBITDA.
- The stabilising COVID-19 situation in Singapore and positive news flow on vaccines are also likely to support the Genting Singapore's share price in the near term. In view of the improving prospects, we expect Genting Singapore's dividends to resume at year’s end, with a likely dividend of 2 cents/share.
Scenario analysis.
- We do not foresee another circuit breaker round in Singapore, though restrictions may tighten should COVID-19 cases rise again. In our worst case scenario, where we assume tourism does not resume in the medium term, we still expect 3Q numbers to prevail.
- We then project Genting Singapore to generate an annualised EBITDA of S$500-600m. In such a case, we expect dividend payouts to cease.
- We believe Genting Singapore will still have sufficient cash flows and cash on hand to fund its RWS 2.0 capex, but expect the Government to approve the capex delay should tourism not resume. Our intrinsic value then drops to c.S$0.55/share.
- See Genting Singapore Share Price; Genting Singapore Target Price; Genting Singapore Analyst Reports; Genting Singapore Dividend History; Genting Singapore Announcements; Genting Singapore Latest News.
Key risks.
- Development of vaccines as well as a faster and smoother reopening of borders would be key upside risks to our call.
- Rising COVID-19 cases in Singapore and key neighbouring countries constitute a downside risk, as it will impact local visitorship and slow down tourism resumption, in our view.
Juliana Cai
RHB Securities Research
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https://www.rhbinvest.com.sg/
2020-11-16
SGX Stock
Analyst Report
0.72
UP
0.620
