• Keep BUY and SGD0.95 TP, 23% upside, c.3% FY22 yield. Genting Singapore’s 1Q22 earnings missed our and Street’s expectations mainly due to higher-than-expected costs, while revenue was in line. We believe subsequent quarters will continue to improve on Singapore’s border reopening. We trimmed FY22F earnings by 8% to factor in higher costs. We continue to like GENS for its strong recovery in FY22 and 4% FY23 yield.

• 1Q22 missed both our and Street’s expectations. 1Q22 adjusted EBITDA made up 19% of our estimates and 18% of Street’s, while core net profit made up 13% and 12% respectively. The deviation was mainly due to lower- than-expected margins, as revenue met our expectations at 21% of our full- year estimate. No dividends were declared, as expected.

• Results highlights. Despite the Omicron variant’s spread in 1Q22, gaming revenue improved 8% YoY and 42% QoQ, while non-gaming revenue (NGR) rose 26% YoY. NGR softened 16% QoQ against a seasonally stronger 4Q, where the holiday season tends to draw more visitors to GENS’ non-gaming attractions. Adjusted EBITDA dipped 2.5% YoY on higher utility expenses and the expiry of COVID-19-related government grants. Adjusted EBITDA jumped 80% QoQ mainly on gaming revenue recovery, which lifted adjusted EBITDA margin by 13ppts QoQ to 40%.

• Outlook. While management has pointed out that “limited flight schedules” and “ongoing travel restrictions on visitors from certain countries” may moderate the pace of recovery in leisure travel, we believe that these limitations and restrictions will continue to ease as the world transitions into endemicity. Moreover, Singapore’s reopening of borders to vaccinated travellers will continue to drive GENS’ recovery. Despite 1Q22’s softer margins, we believe its EBITDA margin will recover in tandem with its revenue, given its operating leverage.

• Earnings and forecasts. Post results, we trimmed FY22F earnings by 8%, as we factored in higher costs, amidst an inflationary environment. We keep our SGD0.95 TP, which includes a 2% ESG discount. Our valuation is based on 8.5x FY23F EV/EBITDA, which we think is undemanding relative to regional peers’ 11x, especially as GENS currently has relatively brighter prospects. Our BUY call is premised on: i) A 2-year earnings CAGR of 92%, and (ii) potential upside on dividends. As the 1Q22 period does not reflect Singapore’s reopening of borders to vaccinated travellers, we are not concerned about the earnings miss.

• Key downside risks: i) Re-closure of international borders, which would likely reduce footfall, ii) negative luck factor and regulatory risks, which could impact gaming revenues, and iii) China’s strict clampdown on illegal gambling and capital outflows having a dampening effect on GENS.

Source: RHB Research - 20 May 2022