GENS’ share price has retreated since reporting below consensus results on May 12, note analyst Yin Shao Yang. “We had a virtual meeting with management to get an update. We understand that operations have been improving steadily. While Ebitda margins may come in a tad lower than we expected, absolute Ebitda is on track to recover to pre-Covid levels in FY2024,” says Yin.

Meanwhile, quarter-to-date, the analyst understands that all major operating metrics, such as VIP volume, mass tables gross gaming revenue (GGR), slot machine GGR and non-gaming revenue are trending higher q-o-q.

The high margin slot machine GGR continues to grow, driven by locals, while non-gaming revenue which dipped 15% q-o-q in 1Q2023 – due to Singaporeans travelling abroad in March for the school holidays – is also recovering.

“Curiously, 5M2023 Chinese visitor arrivals came in at only 20% of 5M2019 levels. It follows that there is room for the aforementioned operating metrics to improve as seat capacity from China recovers,” says Yin.

See also: <a class='gtm_see_also_1_inread' style='text-decoration: underline;' href='/capital/brokers-calls/s-reits-not-yet-vogue-dbs-continues-favour-industrial-and-retail-subsectors?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>S-REITs not yet in vogue, DBS continues to favour industrial and retail subsectors</a>

On the other hand, the analyst is cautious as margins may come in narrower than expected.

Thus, the analyst is comfortable with his FY2023 VIP volume/ mass market GGR (tables and slots) forecasts, which are based on 88%/105% of FY19A levels (1QFY2023: 76%/100% of FY2019 quarterly average).

“As more Chinese return, we still expect FY2024 mass market to hit 120% of FY2019 levels. Yet, we understand that Ebitda margins are unlikely to hit 50% in FY2024. This is because GENS will raise its headcount from 7,208 as at end-FY2022 and incur more marketing expenses to attract more Chinese tourists,” says Yin.

See also: <a class='gtm_see_also_2_inread' style='text-decoration: underline;' href='/capital/brokers-calls/uob-kay-hian-lifts-comfortdelgros-tp-161-upon-seeing-improving-rail-and-taxi?utm_source=website&utm_medium=article&utm_campaign=ONPAGESEO'>UOB Kay Hian lifts ComfortDelGro’s TP to $1.61 upon seeing improving rail and taxi ridership</a>

All in all, the analyst has trimmed FY2023/FY2024/FY2025 core net profit forecasts by 12%/6%/9% (EBITDA forecasts by 14%/9%/8%). “Notwithstanding our lower Ebitda forecasts, we still expect FY2024 Ebitda to return to FY2019 levels by then. This is more meaningful when we consider that gaming tax rates will effectively be 5 percentage points higher by then” says Yin, adding that he understands GENS will not make a second bid for a Japanese IR license and it is too early to tell if it will bid for a Thai one.

As at 10.45am, shares in GENS are trading at 93 cents.

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