- D/G to NEUTRAL from Buy, with lower SGD0.90 TP from SGD0.95, 8% upside, 3.6% FY23 yield. Genting Singapore’s 1H22 earnings missed our and Street’s expectations, mainly on higher-than-expected costs and poor luck factor. Its 2Q22 performance paled in comparison to Marina Bay Sands’ (MBS) stellar 2Q22. We downgrade our rating as we believe the recovery story has been priced in, while its outlook remains uncertain with energy and staff cost increases, and the continued lack of tourists from China, which is a key market for GENS.
- Below expectations. GENS’ 1H22 core profit of SGD109m made up 36% of our FY22F estimates and 31% of Street’s. Revenue and adjusted EBITDA came in at 44% and 42% of our forecasts, respectively. The QoQ gross gaming revenue (GGR) growth of 2.7% was disappointing compared to MBS’s QoQ GGR growth of 84%. The disappointing results were also due to GENS’ poor luck factor in 2Q22. DPS of 1 cent is as expected.
- Results highlights. While Resorts World Sentosa’s (RWS) non-gaming revenue recovered 32% QoQ and GGR recovered 2.7% QoQ, we think GENS’ recovery may be slower than expected. While the shortage of staff is partially to blame, management is still aggressively hiring and hopes to hire 1,600 staff by the year-end.
- Our recent visits to both RWS and MBS saw disappointing footfall at RWS’ premise and casino, vs the large crowds at MBS and its casino. On a Sunday afternoon, we observed that about half of the tables in the RWS casino were empty. From our conversations with RWS staff, we gathered that there has been a return of ASEAN tourists, but a noticeable lack of northern Asian (China) tourists. We observed that most of the patrons in RWS were locals, while those at MBS were more diverse, including crowds from southern Asian countries. This is reflected in RWS’s 2Q22 mass market share of 37% (vs 40% pre-pandemic).
- Forecast. We trim FY22F-24F earnings by 14-17% to account for the slower-than-expected recovery and continued increase in utility and staff costs. In relation to continued governance concerns for Genting’s entities, owing to related-party transactions in recent years, we lower our GENS ESG score to 2.8 from 2.9, and ascribe a 4% ESG discount to arrive at our new TP. The TP is based on an unchanged 8.5x FY23F EV/EBITDA.
- We downgrade to NEUTRAL mainly because we think the recovery has been priced in, and our recent visit showed that recovery is slower than we had anticipated, mainly due to the lack of Chinese tourists. We think that the key re-rating catalyst for the stock would be the return of Chinese tourists – which seems unlikely to happen any time soon.
- Key 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 - 15 Aug 2022
