• Genting Singapore’s 3Q22 results were within expectations and recorded the best quarterly revenue (87% of pre-pandemic levels) since the pandemic broke out. The resilient performance was attributed to a strong luck factor, steep recovery of demand and tourist arrivals, as well as better operating capacity.
• We remain optimistic on Genting Singapore’s sharp earnings recovery which will allow capital gains and restoration of lush dividend yields following better capital management efforts. Maintain BUY.

Genting Singapore Reported Remarkable Earnings Recovery in 3Q22

• Genting Singapore (SGX:G13)’s 3Q22 results revealed that Resort World Sentosa (RWS) charted strong revenue (+49% q-o-q, +107% y-o-y) and EBITDA (+73% q-o-q; +143% y-o-y) recoveries. See Genting Singapore's announcement dated 10 Nov 2022 – Despite 3Q22’s adjusted EBITDA of S$249m predictably still underperformed rival Marina Bay Sands (MBS) due to lower GGR market share (Genting Singapore 36% vs MBS 64%), RWS recorded the best quarter since COVID-19 with revenue and net profit recovering to about 87% and 85% of 3Q19’s. 9M22 EBITDA represented 67% and 72% of our and consensus full-year forecasts, which we deem largely in line as we anticipate a sequentially stronger 4Q22 performance.
• Stellar operating performances lifted by better luck factor and capacity restoration. Genting Singapore’s gaming revenue in 3Q22 recovered strongly by 59% q-o-q and represented 106% of pre-pandemic level, mainly due to an exceptionally strong VIP win percentage (4.8%) and better operating capacity following the gradual resolve of earlier labour shortage issues. We estimate luck-adjusted EBITDA for 3Q22 to be about S$170m-180m.
• Meanwhile, non-gaming revenue also recovered 37% q-o-q to about 59% of pre-pandemic levels, reflecting Singapore’s overall pent-up tourism demand in 3Q22 which lifted hotel occupancy and average room rates. We expect the recovery trend to sustain in upcoming quarters and expect the reopening of Festive Hotel (389 rooms) in 1Q23 to further elevate Genting Singapore’s earnings.
• Noteworthy GGR recovery following Singapore’s revitalised tourism market. To note, Singapore’s 9M22 tourist arrivals exceeded 3.7m, and the Singapore Tourism Board (STB) expects visitor arrivals to reach 5m-6m for 2022 which we deem highly achievable. Despite 9M22 tourist arrival numbers remaining a fraction (26%) of pre-pandemic figures, October’s tourist arrivals recovered to > 53% of pre-pandemic’s level.
• We expect Genting Singapore’s gaming volume to significantly recover in 4Q22 in tandem with the influx of international visitors. Overall, we expect Genting Singapore’s GGR to recover to about 70% of 2019’s level and fully resurrect its pre-pandemic GGR in 2023 after China’s borders reopen.

Anticipating Better Capital Management Particularly in 4Q22

• To note, Genting Singapore had fully redeemed its ¥20b (about S$195m) Japanese Yen-denominated bonds in Japan on 24 October.
• With Genting Singapore’s finally dropping its decade-long pursuit of clinching a pricey Japan IR concession and with no new compelling projects to consider, management is targeting to enhance capital management and to develop a dividend policy.
• Theoretically, the scope of Genting Singapore’s capital management can be significant, considering its net cash of S$ 3.1b (26 cents/share) and that post-pandemic-peak EBITDA is largely sufficient to fund its S$4.5b RWS 2.0 expansion.

S$4.5b Expansion Plan Expeditiously Proceeding

• Recall that RWS is committed to spending S$4.5b (RWS 2.0) over five years to elevate the resort’s vibrancy. For the first phase of RWS 2.0, Genting Singapore’s will be investing S$400m in capex for the construction of Universal Studios Singapore’s Minion Land, the Singapore Oceanarium, as well as refurbishment of its three hotels beginning 2Q22.
• We understood that construction works on both Minion Land and the Singapore Oceanarium are progressing well, while the complete remake of the Festive Hotel into a boutique style accommodation is targeted to be done in 1Q23, boosting RWS’ room inventory by 389 keys.

Optimistic on China’s Imminent Patronage Reinstatement

• We retain our view that China’s eventual border reopening remains as a strong re-rating catalyst for Genting Singapore’s to restore its pre-pandemic earnings dynamic.
• To recap, China visitors historically make up about 20% of Singapore’s pre-pandemic tourist arrivals in 2018-19. We forecast that Chinese footfall made up about 20% of RWS’ footfall and 20-25% of Genting Singapore’s top-line revenue.
• Moving forward, we expect China to ease travel restrictions from 4Q22-1Q23 onwards. China’s pent-up demand may allow Genting Singapore’s to potentially deliver above pre-pandemic earnings that could trounce our earnings estimates.

Genting Singapore – Earnings Forecast Revision and Recommendation

• Maintain BUY recommendation on Genting Singapore with an unchanged target price which implies 8x 2023 EV/EBITDA (-1 standard deviation below mean). We expect Genting Singapore's Share Price to re-rate in reaction to Singapore’s tourism recovery. With the world eventually fully unwinding COVID-19 curbs, and presumably including China by 4Q22-1Q23, we expect Genting Singapore’s’EBITDA to claw back to the pre-pandemic level of S$1.2b in 2023 as the worst is likely over.
• Normalisation of lush prospective yields to 4.3-4.9% in 2022-23, assuming revenue and cash flows recover back to pre-pandemic levels.
• Theoretically, our target price for Genting Singapore would rise to S$1.22 once our valuation horizon rolls over to 2023, assuming EBITDA recovers to S$1.2b and historical mean EV/EBITDA valuation of 10x.
• We believe market should turn more positive towards Genting Singapore’s with the core profitability recovery and appealing dividend yield which promises defensiveness amid current market volatility. Re-rating catalysts for Genting Singapore include:
  • further core earnings improvement,
  • China’s reopening of its borders, and
  • Genting Singapore making good utilisation of its big cash pile for acquisition or paying special dividend.

Source: UOB Kay Hian Research - 11 Nov 2022