- BUY, new SGD0.95 TP from SGD0.90, 17% upside with c.4% FY23F yield. We recently checked in with management, emerged upbeat in our outlook for Genting Singapore. We still like this company, for its recovery from borders reopening, and potential upside in dividends. Earnings should recover strongly in the quarters ahead, on the return of international tourists.
- The return of international tourists. GENS should benefit from Singapore’s: i) Reopening of international borders to vaccinated travellers; and ii) focus on reviving the tourism industry. Management said that footfall has improved since 1 Apr. We believe the pent-up demand for international travel will drive the return of tourists from GENS' traditional markets in ASEAN and northern Asia, which account for c.60-70% of its visitor numbers prior to the pandemic. Singapore’s new efforts to boost the tourism industry – including SGD500m in funding and a tourist incentive scheme – also bodes well for GENS. The return of business tourists, from the Government's efforts to attract more MICE events, may also have a positive spillover effect on GENS. Together, these should lift its gross gaming revenue and earnings ahead.
- RWS 2.0 is guided to be ready in 2025, given the delay caused by COVID- 19. So far, GENS has spent SGD900m on the project, and earmarked SGD400m in capex for 2022. Potential cost escalations due to the surge in construction cost may lift its SGD4.5bn guidance. We note that the majority of the costs will likely be backloaded in 2H24 and 2025. While plans for funding are not set in stone, GENS will likely tap on internal resources and cash balance (4Q21 net cash: SGD3.1bn) for this.
- Gradual recovery towards pre-pandemic dividends. With the Yokohama integrated resort now a distant dream, GENS will gradually strive towards a pre-pandemic DPS of 4 SG cents, given its healthy net cash pile of SGD0.38 per share. Nonetheless, given the unpredictable recovery path, we conservatively estimate DPS at 2-3 cents for FY22-FY23F but do not rule out further upside should the recovery outlook become clearer.
- We maintain our estimates but raise our TP to SGD0.95, based on 8.5x EV/EBITDA (from 7.9x) with a 2% ESG discount (ESG score: 2.9). The higher multiple reflects GENS’ better and more certain prospects, as Singapore begins to treat COVID-19 as an endemic, reducing the probability of more future strict lockdowns. Our BUY call is premised on: i) 2-year earnings CAGR of 92%, driven by the return of international tourists, and ii) potential upside in dividends. GENS’ current FY23F EV/EBITDA of 7.8x is at a discount to the regional peer average c.11x, but we note that regional valuations may be subdued due to unfavourable conditions in Macau – which GENS is shielded from. While GENS’ recovery play is well-documented, we believe investor interest in the stock may pick up once earnings recover. Key risks: Re-closure of international borders, negative luck factor and regulatory risks.
Source: RHB Research - 8 Apr 2022
