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Analysts remain optimistic on Genting Singapore; expect earnings momentum to sustain

Khairani Afifi Noordin
Khairani Afifi Noordin11/14/2022 09:44 AM GMT+08  • 4 min read
Analysts remain optimistic on Genting Singapore; expect earnings momentum to sustain
Despite macroeconomic headwinds, Genting Singapore’s outlook continues to be promising. Photo: Samuel Isaac Chua/The Edge Singapore
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Analysts at UOB Kay Hian, Maybank Securities and DBS Group Research are optimistic on Genting Singapore, following the announcement of its 3QFY2022 results ended September.

UOBKH analysts Vincent Khoo and Jack Goh have kept their “buy” call and target price of $1.08. They note Genting Singapore’s “remarkable” earnings recovery in 3QFY2022, with Resorts World Sentosa (RWS) charting strong revenue and EBITDA recoveries at 107% and 143% y-o-y respectively.

“Despite 3QFY2022’s adjusted EBITDA of $249 million predictably still underperformed rival Marina Bay Sands due to lower gross gaming revenue market share, RWS recorded the best quarter since Covid-19 with revenue and net profit recovering to about 87% and 85% of 3QFY2019’s. 9MFY2022 EBITDA represented 67% and 72% of our and consensus full-year forecasts, which we deem largely in line as we anticipate a sequentially stronger 4Q22 performance,” the analysts add.

Genting Singapore’s 3QFY2022 gaming revenue recovered by 59% q-o-q, representing 106% of pre-pandemic level. This is mainly due to an exceptionally strong VIP win percentage and better operating capacity, following the gradual resolve of earlier labour shortage issues. Non-gaming revenue also recovered by 37% q-o-q, reflecting Singapore’s overall pent-up tourism demand which lifted hotel occupancy and average room rates.

UOBKH expects the recovery trend to sustain in upcoming quarters. It also believes that the reopening of Festive Hotel in 1QFY2023 will further elevate Genting Singapore’s earnings.

Meanwhile, Maybank analyst Yin Shao Yang says Genting Singapore’s 3QFY2022 earnings were within his expectations and appear to be sustainable in the future. “This is because we gather that the 3QFY2022 VIP win rate was within the theoretical range as the 3Q22 EBITDA margin of 48% is largely in-line with our long term EBITDA margin forecast of 51%-52%,” he adds.

See also: UOB Kay Hian upgrades Frencken to 'buy' due to 'positive outlook' for its key customer and improving cost pressures

The analyst has maintained his “hold” call on Genting Singapore, raising his target price slightly to 88 cents from 86 cents previously. Yin expects Genting Singapore to report quarterly results similar to that of 3QFY2022 going forward.

DBS analyst Jason Sum concurs, adding that Genting Singapore is well positioned to recover with Singapore’s Vaccinated Travel Framework and synchronised reopening of borders in the region. He adds that the imminent return of foreign tourists — which accounted for 75%-80% of total attendance prior to the pandemic and higher average spending per visitor — will give a significant boost to Genting Singapore’s earnings over the next two years.

Sum points out that Genting Singapore has a robust balance sheet and strong operating cash flows to enhance shareholder returns. “We believe there may be an upside to our dividend-per-share projections as the management has signalled that they will be more generous going forward so as to reward shareholders.”

See also: Citi maintains 'buy' rating on Genting Singapore off the back of MBS results beat

Despite macroeconomic headwinds, Genting Singapore’s outlook continues to be promising, although a strong Singapore dollar could have a slight negative impact on inbound tourism, says Sum. Overall indicators suggest that it will be some time before the substantial pent-up demand subsides, particularly as countries in the region continue to reopen.

“Nonetheless, Genting Singapore is insulated against rising interest rates because of its robust balance sheet, a stark contrast to most other gaming operators in the region,” says Sum.

He maintains his “buy” call with an unchanged target price of $1, raising his FY2022 and FY2023 earnings estimates by 10% and 2% respectively to reflect stronger gaming volumes and healthier operating margins on greater economies of scale.

UOBKH analysts expect the stock to re-rate in reaction to Singapore’s tourism recovery. With the world eventually fully unwinding Covid-19 curbs which presumably includes China by 4QFY2022 to 1QFY2023, the analysts forecast Genting Singapore’s EBITDA to claw back to the pre-pandemic level of $1.2 billion in FY2023 as “the worst is likely over”.

“Theoretically, our target price for Genting Singapore would rise to $1.22 once our valuation horizon rolls over to 2023, assuming EBITDA recovers to $1.2 billion and historical mean EV/EBITDA valuation of 10x,” they add.

As at 9.37am, shares in Genting Singapore are trading 2 cents higher or 2.41% up at 85 cents.

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