Genting Singapore - UOB Kay Hian 2022-08-15: 2Q22 Best Quarterly Revenue; Catalysts Abound In 2H22

GENTING SINGAPORE LIMITED (SGX:G13)

Genting Singapore - 2Q22 Best Quarterly Revenue; Catalysts Abound In 2H22

Genting Singapore’s 2Q22 results were within expectation, recording the best quarterly revenue (55% of pre-pandemic levels) since the pandemic, but the earnings recovery predictably lags rival MBS’ due to weaker luck factor, labour shortage issues and closure of Festive hotel.

We remain upbeat on Genting Singapore's 2H22 recovery following Singapore’s border reopening and further loosening of social prohibitions.
The cash-rich Genting Singapore plans to enhance its capital management efforts. Target price: S$1.08.

Genting Singapore (SGX:G13)’s 2Q22 results revealed that Resort World Sentosa’s (RWS) revenue recovered (+11% q-o-q, 26% y-o-y). Despite the revenue recovery, 2Q22’s adjusted EBITDA of S$144m (-3% y-o-y; +15% q-o-q) predictably underperformed rival Marina Bay Sands’ (MBS) due to lower GGR market share (Genting Singapore: 35% vs MBS: 65%) and weaker VIP luck factor (Genting Singapore: 1.5% vs MBS: 4.29%).
While 1H22 EBITDA represented 35% and 37% of our and consensus full-year forecasts, we anticipate a sharper recovery in 2H22 following the region’s economic reopening.
Positively, Genting Singapore declared interim dividend of S$0.01 in 2Q22 (2Q21: none), implying a yield of 1.2%.
Strong mass market gaming revenue recovery masked by poor luck factor. Gaming revenue recovered 7% y-o-y to represent 54% of pre-pandemic levels. An exceptionally poor VIP win percentage masked a more robust q-o-q growth in gaming volume and mass market revenue (which we estimate to have grown 15-20% q-o-q). We expect further gross gaming revenue (GGR) recovery in 2H22 with the government scrapping the requirement of pre-departure tests for inbound travelers from 26 Apr onwards.

To note, Singapore’s 1H22 tourist arrivals exceeded 1.5m, and the Singapore Tourism board (STB) expects visitor arrivals to reach 4m-6m for 2022. Despite the 1H22 tourist arrival numbers remaining a fraction (16%) of pre-pandemic figures, June’s tourist arrival recovered to > 35% of pre-pandemic levels.
We expect Genting Singapore’s GGR to significantly recover in 2H22 in tandem with the influx of international visitors. Overall, we expect Genting Singapore’s GGR to recover to about 70% of 2019’s level and fully resurrect its pre-pandemic GGR in 2023 after China’s borders reopening.

We retain our view that China’s eventual border reopening remains as a strong rerating catalyst for Genting Singapore to restore its pre-pandemic earnings dynamic.
To recap, China visitors historically make up about 19-20% of Singapore’s pre-pandemic tourist arrival in 2018-19. We think that Chinese footfall made up about 20% of RWS’ footfall and 20-25% of Genting Singapore’s top-line revenue.
Moving forward, we expect China to ease travel restrictions from 4Q21-1Q23 onwards. China’s pent-up demand may allow Genting Singapore to potentially deliver above pre-pandemic earnings that could trounce our earnings estimates.

With Genting Singapore finally dropping its decade-long pursuit of clinching a pricey Japan IR concession, and with no new compelling projects to consider, management is targeting to enhance capital management and to develop a dividend policy.
Theoretically, the scope of the company’s capital management can be significant, considering its net cash of S$ 3.1b (26 cents/share) and that post-pandemic EBITDA is largely sufficient to fund its S$4.5b RWS 2.0 expansion.

Recall RWS’ commitment to spend S$4.5b (RWS 2.0) over 5 years to elevate the resort’s vibrancy. For the first phase of RWS 2.0, Genting Singapore will be investing S$400m in capex for the construction of Universal Studios Singapore’s Minion Land, the Singapore Oceanarium, as well as refurbishment of its three hotels beginning 2Q22. We understand that construction works on both Minion Land and the Singapore Oceanarium are on track to start in 2H22.

Maintain BUY recommendation on Genting Singapore with an unchanged target price of S$1.08, which implies 8x 2023F EV/EBITDA (-1 standard deviation below mean).
We expect Genting Singapore's Share Price to re-rate in reaction to Singapore’s tourism recovery. With the world eventually fully unwinding COVID-19 curbs, and presumably including China by 4Q22-1Q23, we expect Genting Singapore’s EBITDA to claw back to the pre-pandemic level of S$1.2b in 2023 as the worst is likely over.
See
Normalisation of lush prospective yield to 4.1-4.9% in 2022-23, assuming revenue and cash flows recover back to pre-pandemic levels. Meanwhile, we expect Genting Singapore to deliver significantly better dividends in 2H22. Theoretically, our projected 2022 after tax EBITDA is sufficient to fund a final dividend of S$0.02 (2.4% 2022F yield).
Theoretically, our target price for Genting Singapore would rise to S$1.22 once our valuation horizon rolls over to 2023, assuming EBITDA recovers to S$1.2b and historical mean EV/EBITDA valuation of 10x.
We believe market should turn more positive towards Genting Singapore with the core profitability recovery and appealing dividend yield which promises defensiveness amid current market volatility.
Re-rating catalysts for Genting Singapore's Share Price include:
- further core earnings improvement,
- China’s reopening of its borders, and
- Genting Singapore making good utilisation of its big cash pile for acquisition or paying special dividend.

Vincent Khoo CFA UOB Kay Hian Research | Jack Goh UOB Kay Hian | https://research.uobkayhian.com/ 2022-08-15

SGX Stock Analyst Report BUY MAINTAIN BUY 1.080 SAME 1.080