SINGAPORE (Jul 6): Genting Singapore, which runs the integrated resort and casino Resorts World Sentosa (RWS), is headed for a slow recovery after shutting for two months in a “wash-out year”, according to analysts from UOB Kay Hian. The company has been downgraded to “hold” with an unchanged target price of 80 cents. 

“We gauge that 2020 will be a wash-out year as 1H2020 earnings will take a heavy toll from plunging hotel occupancy rates and gaming revenues before the lockdowns, and zero revenue during the temporary closures in the lockdown periods.”

“A slow recovery is expected with impediments on international travel into Singapore and reduced gaming capacity,” noted the July 2 report by analysts Vincent Khoo and Jack Goh. 

RWS and its attractions Universal Studios Singapore and S.E.A Aquarium were shut from Apr 7 to July 1, owing to circuit breaker measures, introduced to curb a sharp rise in the number of Covid-19 infections in Singapore.

In May, Genting Singapore reported earnings of $148.9 million for 1QFY2020 ended March, some 55% lower than earnings of $329.7 million a year ago. In particular, earnings from the company’s Singapore Integrated Resort (IR) plunged 53% to $159.3 million. 

Despite the reopening, entry to casinos is currently limited to Genting Reward members and annual levy holders only. The slow recovery is limited by RWS’ heavy reliance on foreign tourists and Singapore’s social distancing rules, which force the RWS casino to operate at just a quarter of its gaming capacity. 

In addition, UOB Kay Hian cut Genting Singapore’s FY2020-21 net profits by 49% and 9% (cumulatively 92% and 18%) “as the duration of the lockdowns in Singapore have stretched beyond initial expectation[s]”. The reduced capacity is also expected to contribute to lingering uncertainty in 2H2020, with the region’s airline and tourism restrictions still up in the air. 

RWS' Japan gamble

Analysts are also wary of the company’s pursuit of IR bids in Japan, noting the high capex commitment involved and the withdrawal of large US bidders such as Las Vegas Sands, citing nonviable regulatory framework like an entrance fee for locals and a limit on gaming floor space to not more than 3% of the total area.

Japan legalised plans to build three IRs back in July 2018. Now touted as a way to restart its economy after lockdowns due to Covid-19, the prefectures of Osaka, Yokohama, Nagasaki, Wakayama and Tokyo are vying to land one of three multibillion-dollar complexes on their turf.    

Yokohama’s Request for Proposal (RFP) process will start at around July after the federal government’s basic policy is finalised and the results will be known at the year end. Genting Singapore will also participate in Tokyo’s bid when it is rolled out, said UOB Kay Hian.

Selected operators will submit their proposals to the federal government in 2H2021, with openings slated for 2026. Analysts noted that Japan’s current IR window term of five years is difficult for operators to realise return on investments as the payback period for large IRs is seven to nine years.

“Should [Genting Singapore] win the Japan bid, we may have to review our post-2020 dividend assumptions, given the deteriorating near-term cashflow outlook, hefty RWS 2.0 capex and capital commitment for the Japan IR,” noted UOB Kay Hian. 

Reopening and recovery

Within this year and the next, there are hopes for better arrivals following the reopening of borders to neighbouring countries with relatively lower COVID-19 cases, such as Malaysia, Brunei, Australia, New Zealand, Macau, Taiwan and Vietnam. 

“Successful lifting of travel restrictions would drive up RWS’ earnings, given its high dependency on foreign visitors. This could signify a potential recovery of up to 80% of pre-Covid-19 tourist arrivals.”

Genting Singapore has also enjoyed sizeable cost savings of about $91 million from the government’s stimulus and job support schemes, or 28% of UOB Kay Hian’s 2020 EBITDA forecast. 

This came in the form of salary support for Genting Singapore’s 9,373 employees, of which nearly three quarters are locals or Permanent Residents; tax savings of about $20 million from the 60% property tax rebate granted by the government in previous Resilience and Solidarity Budgets; and additional savings of $2.6 million from foreign worker levy waiver & rebates.

As at 11.46am, Genting Singapore is trading at 0.5 cents higher, or 0.64% up, at 78 cents.