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

Bryan Wu
Bryan Wu • 3 min read
Citi maintains 'buy' rating on Genting Singapore off the back of MBS results beat
Resorts World Sentosa is set to be one of biggest beneficiaries of Singapore’s reopening. Photo: Bloomberg
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Citi Investment Research analysts have maintained their “buy” rating for Genting Singapore with a target price (TP) of $1.04 with its Resorts World Sentosa (RWS) set to be one of “biggest beneficiaries” of Singapore’s reopening.

In their report dated Jan 26, analysts George Choi and Ryan Cheung say the ebitda recovery trajectory of competitor Marina Bay Sands (MBS) in 4QFY2022 ended December positively surprised the market, and they expect RWS to enjoy a similar recovery during the quarter.

The analysts note that MBS management believes it could have more upside in earnings recovery, since its 4QFY2022 ebitda was achieved with around 20% of its hotel rooms being out of service due to an ongoing renovation program.

MBS also expects to maintain its margin by “overcoming cost inflation with higher revenues across the board” in every segment and for the robust recovery to continue as additional airlift into Singapore comes online and further relaxation measures in the region are implemented.

MBS’s 4QFY2022 net revenue declined by 10% q-o-q to US$682 million ($896.3 million), mainly impacted by the low VIP hold of 1.24% compared to 3.47% in 3QFY2022). For the quarter, VIP volumes recovered to around 90% of 4Q19 levels, while mass volumes and slot volume exceeded that of 4QFY2019 levels by 18% and 37% respectively. Total mass gross gaming revenue (GGR) reached an all-time property high of US$477m, or 109% of 4QFY2019 levels.

For Genting Singapore’s FY2022 results scheduled on Feb 20, they are conservatively forecasting the company to report an ebitda of $262 million for 4QFY2022 ended December, implying a recovery of around 91% of its pre-pandemic levels, similar to the hold-normalised ebitda reported by MBS on Jan 25. Their 4QFY2022 ebitda forecast represents around a 5% q-o-q improvement compared to the previous quarter.

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They are also anticipating, on a luck-adjusted basis, that Genting Singapore will report a 4QFY2022 revenue of $564 million or 93% of its 4QFY2019 levels.

Their TP of $1.04 for Genting Singapore is derived by assigning equal weights to equity values derived from their sum-of-the-parts and discounted cash flow (DCF) valuation methodologies.

They have valued Singapore casinos at 10x 2023 enterprise value/ebitda (EV/ebitda), roughly on par with the Macau Peninsula given the similar growth profile. With Singapore’s reopening set to accelerate visitation, GGR and ebitda, Choi and Cheung are valuing this “new phase” at a higher 12x target multiple, discounted back to 8x. as we expect the new phase to. They have valued RWS’ Universal Studios theme park at the same 10x EV/ebitda multiple.

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Meanwhile, they see a likely increase in dividends, from 1 cent per share in FY2021 to 2.5 cents per share in FY2022, as another reason for investors to buy this stock.

Key downside risks that could impede the stock from reaching their target price include VIP recovery coming in lower-than-expected, government amendments to casino laws could set limits on local Singaporeans visiting casinos and higher-than-expected bad debt provision.

As at 2.49pm, shares in Genting Singapore were trading 1 cent or 1% down at 99 cents.

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