Maybank Kim Eng analyst Yin Shao Yang has downgraded Genting Singapore to “hold” from “buy” with a lower target price of 92 cents from 95 cents previously.
While Genting Singapore’s 2HFY2020 and FY2020 earnings and dividends outperformed his expectations, they were largely due to non-recurring items.
See: Genting Singapore ends FY2020 in the black with earnings of $69.2 mil
The non-recurring items included FY2020 reversal of impairment on trade receivables of $22.8 million and reversal of bonuses which Genting Singapore did not quantify, notes Yin.
The way Yin sees it, Genting’s Resorts World Sentosa (RWS) is still lagging behind compared to fellow integrated resort, Marina Bay Sands (MBS), who reported “sterling” 4QFY2020 results in tandem with the lifting of operating capacity limits.
“Our earnings estimates are little changed for now. We also trim our discounted cash flow or DCF-based target price by 3% to 92 cents on minor housekeeping. With less than 10% upside potential, we downgrade Genting Singapore to ‘hold’,” says Yin in a Feb 10 report.
Genting Singapore, on Feb 9, reported earnings of $69.2 million for the FY2020 ended December. Despite the 90% y-o-y plunge due to the impact of Covid-19, the casino operator managed to stay in the black for the year.
FY2020 revenue for Genting Singapore stood at $1.06 billion.
In comparison, MBS reported revenue of US$1.26 billion ($1.67 billion) for the same period.
According to Yin, Genting Singapore’s final dividend of 1 cent per share during FY2020 also surpassed his expectations, as he was not expecting any for the period.
That said, underlying operations could have been better, in Yin’s view.
“RWS was allowed to increase operating capacity from 25% to 50% from Sept 18, 2020 and admit all guests from Oct 9, 2020 (members only before), but 4QFY2020 gaming revenue was flat q-o-q,” he says.
“In contrast, MBS’ 4QFY2020 gross gaming revenue (GGR) grew 12% q-o-q in USD terms. This implies RWS ceded GGR share in 4QFY2020. RWS was allowed to increase operating capacity from 50% to 65% from 28 Dec 2020 but Genting Singapore still does not expect its GGR to improve markedly on lack of foreign gamblers,” he adds.
To Yin, his earnings per share (EPS) estimates for Genting Singapore remain unchanged at +0%/+1% for FY2021/FY2022 respectively, which “implies easing of 6% y-o-y due to FY impact of the 3 percentage point gaming tax hike that will take effect on March”.
Genting Singapore has guided that it does not expect the VIP market to recover to pre-Covid-19 levels due to intensified pressure on overseas gambling imposed by the Chinese government on its citizens.
Remaining ‘neutral’ on Genting Singapore
The Singapore research team from RHB Group Research has maintained “neutral” on Genting Singapore albeit with a higher target price of 94 cents from 72 cents previously.
The higher target price is based on an unchanged 8 times EV/EBITBA after rolling forward its valuation base year to FY2022.
“This is to better reflect a normalised operating environment, post reopening of international borders. While Genting Singapore is a beneficiary of a cyclical recovery, we maintain our ‘neutral’ call,” writes the team in a Feb 10 report.
“This is as the current mean valuation is fair, following the new-found share price strength, while a full border reopening may not take place in the near term, dampening the earnings recovery prospects,” it adds.
While the team was positive on Genting Singapore’s results, it noted that the path to recovery in its earnings may be delayed due to the absence of foreign visitors owing to the high number of Covid-19 cases and the time needed for vaccines to be rolled out globally.
The team also estimates that Genting Singapore’s 2021 earnings are unlikely to return to pre-pandemic levels, even though the Singapore government has aimed to vaccinate the population by 3QFY2021.
“Realistically, we only expect a gradual return of foreign visitors in FY2022, given the ununiformed vaccination programs and persistently high Covid-19 cases globally. Hence, we believe 2021 earnings recovery will be capped, supported by only domestic visitors. As such, we cut our FY2021 earnings by 10.8% after assuming lower visitation assumptions,” it says.
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It’s a “buy” for Genting Singapore from these analysts
The analysts from CGS-CIMB Research and OCBC Investment Research, on the other hand, are positive on the counter due to its “satisfactory” results.
CGS-CIMB analyst Cezzane See has maintained “add” on Genting Singapore with a higher target price of $1.05 from 86 cents previously, as the counter surpassed the brokerage’s and consensus’ FY2020 forecasts on better EBITDA margins in 2HFY2020.
The higher target price is also due to its positive medium-term prospects and strong balance sheet, says See.
“4QFY2020’s adjusted EBITDA margin of above 60%, likely due to a combination of [the government’s] jobs support scheme (JSS) and provision reversals (trade receivable impairments saw a write-back of $22.8m in FY20), helped spur FY20F adjusted EBITDA of $427 million, ahead of both our and street’s forecast,” she says.
That said, Genting Singapore’s final dividend of 1 cent per share was “disappointing”, compared to the 4 cents posted in FY2019.
To See, the statistics reported are “heartening” considering the lack of tourists, that made up most of the revenue of both casinos in Singapore previously.
On that, she has raised adjusted EBITDA for FY2021 and FY2022 by 1.0% and 1.8% respectively due to higher revenue and EBITDA growth.
“We estimate FY2021/FY2022 adjusted EBITDA could be around 66%/82% of FY2019’s as tourism returns gradually over the next two years,” she says.
“Genting Singapore’s further recovery relies on Singapore’s borders opening, but we think the stable 2HFY2020 gaming revenues and EBITDA margins point to its resilience. Its strong balance sheet (end-FY2020 net cash position of $3.7 billion) will help tide it over the current tough times,” she adds.
For OCBC Investment Research (OIR) analyst Chu Peng, Genting Singapore’s 2HFY2020 results stood above her expectations as well.
As such, she has maintained “buy” on the counter with a higher fair value estimate of $1.02 from 96 cents previously, based on 8.5 times FY2022 EV/EBITDA.
“While Genting Singapore’s performance continued to face headwinds from Covid-19 in 2H20, there was q-o-q improvement driven by pent-up demand from local visitors together with government’s support to boost local tourism,” Chu notes.
“We continue to see Genting Singapore as a beneficiary of the rollout of vaccines and gradual easing of social distancing and travel restrictions. However, we believe that demand will be largely driven by local demand in FY2021 as it takes time for global rollout of vaccines and opening of international borders,” she adds.
Shares in Genting Singapore closed 0.5 cents lower or 0.6% down at 86 cents on Feb 11.