Genting Singapore - DBS Research 2021-02-10: Value Play To Ride On Vaccine Tailwind

GENTING SINGAPORE LIMITED (SGX:G13)

Genting Singapore - Value Play To Ride On Vaccine Tailwind

Genting Singapore's 4Q20 results exceeded expectations again led by revenge spending by local punters.
But final dividend of S$0.01 was below our estimate.
Genting Singapore is still inexpensive and is a key beneficiary of global COVID-19 vaccine drive.

Another strong sequential improvement in adjusted EBITDA.
Genting Singapore (SGX:G13) reported 4Q20 adjusted EBITDA of S$211.3m, down 26.5% y-o-y, but up an impressive 41.8% q-o-q. This brought full-year FY20 adjusted EBITDA to S$427.0m, handily exceeding the street’s projection of S$340.1m by 25.6%.
Genting Singapore's outperformance during the quarter was largely driven again by a robust domestic gaming market, aided by easing of capacity constraints at non-gaming attractions, increase in staycation bookings and a sizable net reversal of impairment on trade receivables of S$35.9m in 2H20 (quarterly split is not available).

Genting Singapore declared a final dividend of S$0.01 per share, which is a steep drop from S$0.025 per share in FY19.

RWS 2.0 project to be delayed – the management highlighted that construction works for RWS2.0 will likely only begin in early 2022, citing multiple reasons, such as the need to adjust existing designs to adapt to the post COVID-19 world, mandatory inclusion of safe management measures, and better assessment of the current supply chain and labour dynamics. Major components of the project, such as committed capital outlay, increase in gaming area/hotel capacity remains unchanged for now, and the management is hopeful that the delay does not extend beyond a year.
Yokohama has started the integrated resort Request-for-Proposal (RFP) process. The RFP process began on 5 Feb and will conclude by 17 May. Subsequently, an operator will be selected sometime in the summer, and an application containing the final development plan will be submitted to the central government by April 2022. Genting Singapore mentioned that the official RFP document has yet to be released, hence, they are unable to provide guidance on the potential IRR and key risks of the IR project. More information should be released over the next few months.

While we are still positive on the domestic market, a revival in mass travel activity may take longer than originally envisaged. Many countries have embarked on vaccination campaigns, but progress has largely been uninspiring thus far, due to multiple hurdles like production constraints, distribution challenges, and vaccine hesitancy.
Furthermore, the more infectious COVID-19 variants have further complicated the process, as existing vaccines have been found to demonstrate a much lower level of efficacy against them. Hence, we have toned down our expectations, and assumed that a meaningful resumption in international travel activity will only materialise towards the end of 2021.

Although there appears to be limited headroom to further reduce operating costs (the management shared that Genting Singapore is unlikely to shrink its workforce further), we believe that Genting Singapore’s operating margins could potentially widen as the company focuses on attracting mass market gamblers.
The management stated that they do not see VIP volumes returning to its former glory anytime soon, especially with China broadening restrictions on cross-border gambling. Hence, Genting Singapore is re-evaluating which market segments to target and will likely attempt to capitalise on the rising middle-class population in Asia to grow mass gaming revenue, in our view. Genting Singapore could also re-configure the gaming area to accommodate larger mass gaming volumes.
Competition in the region is stiff, but if successful, Genting Singapore’s operating margins will receive a considerable uplift, given that EBITDA margins for the mass segment can be almost twice as lucrative as the VIP segment.

Our EBITDA projections are now lower as we factor in a slower pace of normalisation in air travel activity, though offset by moderate margin expansion. We also trimmed our dividend projections of Genting Singapore for both FY21F and FY22F, to S$0.02 per share and S$0.025 per share respectively, for an implied dividend yield of 2-3.0%. Again, there could be some upside to our dividend projections if Genting Singapore drops out of the Japan IR race.
See

Despite the downward revisions to our earnings, our target price for Genting Singapore remains unchanged as we raise our forward EV/EBITDA peg to 10.0x (+0.5 standard deviation above its 5-year average) due to valuation multiple expansion in the sector.
Even though there is still some uncertainty surrounding Genting Singapore’s recovery trajectory, we believe that Genting Singapore is a solid vaccine recovery play as the Singapore market can comfortably sustain the company until tourists finally return.
Despite its relative outperformance, we think that the current share price is still a good entry point, given that Genting Singapore is priced at an excessively steep discount to peers (please refer to the comparison table with regional peers including Sands China, Galaxy Entertainment, Wynn Macau, SJM Holdings, Melco International, MGM China, NagaCorp in report attached below) despite its brighter earnings outlook.

Jason SUM DBS Group Research | https://www.dbsvickers.com/ 2021-02-10

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