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All work and no play makes Genting Singapore a dull stock

Samantha Chiew
Samantha Chiew • 5 min read
All work and no play makes Genting Singapore a dull stock
All work and no play makes Genting SG a dull stock
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Analysts are rather muted on Genting Singapore (GENS) following its disappointing, but not surprising, results announcement on Aug 6.

GENS recorded its worst quarterly performance since opening, as it posted a net loss of $163.3 million in 2Q20, compared to a profit of $168.4 million in 2Q19. GENS being in the business of gaming, entertainment and hospitality saw all its segments suffer from the plunge in visitor arrivals to Singapore due to the Covid-19 pandemic.

Its casino and attractions were also forced to shut its doors temporarily during the circuit breaker.

With that, revenue for the quarter plummeted 94% to $41.3 million from the $636.8 million a year ago.

With global travelling still highly restricted, the group says it remains “pessimistic” on its overall financial performance.

Although the group’s disappointing results were not a surprise, what was surprising to the analysts was that it did not pay out an interim dividend this period. This time last year, it paid 1.5 cents per share. However, the board "recognises shareholders' interests" and "if necessary" will tap the retained earnings to pay a final dividend.

See: Genting Singapore posts net loss of $163.3 mil in 2Q20, marks 'worst quarterly performance' since opening

DBS Group Research is still waiting for signs of leisure travel to restart. Meanwhile, analyst Jason Sum said in an Aug 6 report that this is “not the time to buy into the tourism turnaround”.

DBS has a “hold” call on GENS with a decreased target price of 70 cents from 75 cents previously.

“We maintain our neutral stance on the stock until we can see a credible path to earnings recovery, which will largely be predicated on the successful development of a vaccine, or the Covid-19 situation stabilising regionally, and loosening of cross-border travel restrictions between Singapore and other countries and social distancing practices domestically,” adds Sum.

As the outlook for GENS remains bleak, the analyst has cut FY20/21 EBITDA estimates for the fourth time this year by another 86%/13%, which brings the new projection FY20 EBITDA forecast to $46.1 million and FY21 to $670 million.

These new projections for FY20/21 are now 96%/48% lower compared to pre-Covid estimates. These EBITDA estimates are below consensus as the analyst expects a more protracted decline in Resort World Sentosa’s (RWS) attendance and believes that the pace of recovery of tourism in Asia will be constrained by a sharp reduction in global flight capacity and dim economic outlook.

“Despite the brutal hit to its earnings, we believe downside from hereon is limited due to GENS’s attractive valuation – the stock is only priced at 7.3 times EV/EBITDA (FY21), which is around one standard deviation below its five-year average, and considerably lower than the regional peer median of 11.8 times,” adds Sum.

Maybank Kim Eng has similar sentiments as it continues to rate GENS “hold” with a lowered target price of 76 cents from 80 cents previously.

Although GENS has reopened RWS in Phase 2, the near-term outlook is still uncertain, as there is no forecast on when international tourists can once again visit Singapore.

“Although RWS recently dismissed most of its casual staff and aims to rationalise 20-30% of its fixed costs, it does not expect to breakeven in the near future due to lack of international gamblers and visitors and social distancing requirements,” says analyst Yin Shao Yang in an Aug 7 report.

Furthermore, only local gamblers who are card members can gamble currently.

Hence, earnings per share (EPS) estimates are maintained based off the assumption that GENS will only see local gamblers for the rest of FY20 (-1.8 cents), local and Malaysian gamblers for FY21 (3.0 cents) and the usual suite of local, Malaysian, Chinese and Indonesian gamblers for FY22 (5.4 cents) as the Covid-19 pandemic is expected to gradually subside across RWS’ key markets.

“That said, we cut FY20/FY21 DPS to 0 cent/2 cents from 4 cents/4 cents following the lack of an interim DPS this year but leave FY22 DPS at 4 cents as we expect earnings to have recovered by then,” adds Yin.

On the other hand, CGS-CIMB has a more bullish view on GENS, as analyst Cezanne See expects the stock to recover in the long-term.

She has a “buy” call on GENS with a target price of 73 cents, a drop from 84 cents previously.

However, the analyst acknowledges that the near-term outlook will be weak for GENS and this year will be a tough year. Hence, she recommends only for long-term investors to “buy” the stock, as she is positive on GENS’ strong balance sheet (net cash position of $3.3 billion as at end-June), which will help it tide through tough times.

“Its share price may drift down in the near-term, but could gradually trade higher with the continued reopening of Singapore and GENS’ facilities,” says See.

Its position as one of only two casinos in Singapore also underscores its importance to Singapore tourism.

However, with the lack of tourists in Singapore, FY20 revenue estimates have been cut by 20% to $840 million, while EBITDA has been but by 69.1% to $108.4 million, as GENS is probably unable to further lower is expenses significantly for the rest of the year.

As at 2.00pm, shares in GENS are trading 4.23% lower at 68 cents or about 1.2 times FY20 book with a dividend yield of 5.6%, according to CGS-CIMB’s estimates.

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