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


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's 2Q22: The best quarter for gaming revenues since the onset of the pandemic.

  • 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.

Prominent GGR recovery following Singapore’s revitalised tourism market.

  • 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.

Upbeat on China patronage’s reinstatement.

  • 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.

Well-positioned to fulfil better capital management particularly in 2H22.

  • 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.

S$4.5b expansion plan for RWS back on track.

  • 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.

Genting Singapore - Earnings forecast revision and recommendation

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