Genting Singapore - UOB Kay Hian 2021-05-10: 1Q21 Interim Weakness Creates A Buying Opportunity

GENTING SINGAPORE LIMITED (SGX:G13)

Genting Singapore - 1Q21 Interim Weakness Creates A Buying Opportunity

Genting Singapore’s 1Q21 results came in below our expectation as non-gaming revenue plunged q-o-q, and gaming revenue remained flattish q-o-q unlike rival MBS. Local patronage remained resilient but international footfall remained largely absent without meaningful border relaxations and the resurgence of COVID-19 cases globally.
Nonetheless, we remain confident on better earnings recoveries in 2022 after the region’s dispensation of COVID-19 vaccines.
Maintain BUY. Target price: S$1.08.

Genting Singapore (SGX:G13)’s 1Q21 results revealed that Resort World Sentosa’s (RWS) gaming revenue remains flattish (+1.6% q-o-q), underperforming Marina Bay Sands’ (MBS) impressive q-o-q gaming revenue growth of 28%.
Genting Singapore also reported adjusted EBITDA of S$128m (-15.5% y-o-y; -44.3% q-o-q), representing only 21% of our full-year forecasts. The steep q-o-q EBITDA decline presumably also reflects (besides the sharp fall in non-gaming revenue) the absence of 4Q20’s reversal of gaming receivables provision and moderating impact of 4Q20’s government subsidies.

RWS’ gaming volume further recovered by 1.6% q-o-q driven by the local market (mass and premium mass segments), while we understand that the VIP win rate was within the theoretical range.

The non-gaming division’s revenue fell 28% q-o-q from the seasonally strong 4Q20, presumably mainly reflecting a tapering impact of SingaporeRediscovers vouchers, as lesser eligible Singapore citizens/PRs are utilising their one-time S$100 voucher in 1Q21.

The tourism sector is a major direct beneficiary of the COVID-19 vaccine dispensation and re-opening of the economy. With hopes riding high on the WHO-endorsed COVID-19 vaccines (with the efficacy extending to the recent virus mutations), and on the global dispensation of the vaccines in 2021, valuations will partially factor in the gaming sector’s return to pre-pandemic earnings dynamics.

While the containment of COVID-19 in Singapore is relatively more successful than other countries, wide dispensation of vaccines is crucial for authorities to initiate more travel arrangements and meaningful border relaxations. The arrival of various vaccines including Pfizer, Moderna and Sinovac in the coming few months will eventually allow the government to achieve its plan to inoculate 5.7m citizens by 3Q21 and achieve herd immunity, which will eventually benefit Genting Singapore on the expected recovery of international patronage.

The resurgence of COVID-19 cases in the country (60 cases in a week) and recent spike in cases of neighbouring countries such as Malaysia as well as India have forced Singapore to return to Phase Two of the country’s gradual reopening after the circuit breakers. The stricter social distancing measure includes reduction of operating capacity from 65% to 50% and 21-day quarantine for inbound travellers, which will affect domestic patronage to RWS and further dampen the sluggish recovery of international tourism.

The revisions on RWS 2.0 expansion are ongoing, with RWS recently obtaining a temporary occupation permit for the remodelled Resorts World Theatre for “Once a Pirate”, a new experiential dining attraction. RWS had committed to the Singapore government to spend S$4.5b over five years to elevate the resort’s vibrancy. New attractions have been planned yearly for 2020-25.

Genting Singapore continues to express interest in Japan’s integrated resort (IR) concession of which the investment community remains wary of, given the high capex commitment and Japan regulators’ overly stringent regulatory framework (eg short concession period of five years) which have caused the withdrawals of most US bidders such as Las Vegas Sands.
While the bidding process has inched forward with media reports highlighting Yokohama’s Request for Proposal (RFP) in Jan 21, the process may still take a while to reach finality.

We cut our 2021 EBITDA forecast by 31% to S$601m, incorporating the resurgence of COVID-19 cases globally and stricter SOPs which largely reduced operational capacity and delayed the earnings recovery.
Nevertheless, we retain our 2022 EBITDA forecast of S$1232m, which assumes full border reopening and EBITDA normalising to the pre-pandemic 2019 level.

Maintain BUY on Genting Singapore with an unchanged target price of S$1.08, which implies 8x 2022F EV/EBITDA (-1 standard deviation below mean).
Genting Singapore share price’s 13% retracement from this year’s peak provides a good buying opportunity and we expect the market to look beyond the temporary earnings weakness and towards an improving momentum in the regional dispensation of COVID-19 vaccines in 2H21 which eventually leads to borders re-opening.
Our valuation also assumes Genting Singapore’s Japan IR bid would not materialise. Hypothetically, a full target price rollover to 2022 (based on mean EV/EBITDA of 11x) suggests a much higher target price of S$1.30.
See
Genting Singapore's dividend yield expected to normalise to 4.1% in 2022, assuming revenue and cash flows recover back to pre-pandemic levels. Meanwhile, expect Genting Singapore to deliver significantly better dividends in 2H21. Theoretically, our projected 2021 after tax EBITDA is sufficient to fund a dividend of S$0.035 per share (4.1% yield).

Vincent Khoo CFA UOB Kay Hian Research | Jack Goh Tooan Orng UOB Kay Hian | https://research.uobkayhian.com/ 2021-05-10

SGX Stock Analyst Report BUY MAINTAIN BUY 1.080 SAME 1.080