Cut Target Price by 15% to SGD0.84; Maintain BUY

• Genting Singapore (SGX:G13) announced an update on its 2020 outlook and warned that its 1Q20 and 6M20 earnings will be negatively impacted by the Covid-19 pandemic.
• We cut our FY20 earnings estimate by 31% but left our long-term earnings estimates little changed and trimmed our EV/EBITDA- based Target Price to SGD0.84 from SGD0.99.
• At 0.9x FY20E P/BV, Genting Singapore’s valuations are at new troughs. Investors who BUY now will be rewarded with high dividend yields of 6.5% pa while waiting for operations to recover.

SG Battening Down Hatches Will –ve Ly Impact RWS

• Singapore has imposed entry restrictions due to the spread of the Covid-19 pandemic around the world.
• On 2 Feb 2020, Singapore banned Chinese visitors.
• On 17 Mar 2020, Singapore required ASEAN, Japanese, Swiss and British visitors to observe a 14-day self-quarantine.
• On 18 Mar 2020, Malaysia banned its citizens from entering Singapore, even those entering by land, but only for two weeks.
• We gather that the latter two developments will negatively impact RWS the most.

Profit Guidance Issued and Salaries to be Cut

• That leaves RWS with Singaporean citizens and permanent resident gamblers, whom we estimate accounted for 20-25% of FY19 GGR. Thus, Genting Singapore issued a profit guidance that it expects 1Q20 and 6M20 earnings to be negatively impacted vis-à-vis 1Q19 and 6M19 earnings.
• To mitigate the negative impact of Covid-19, it reduced executives’ pay and directors’ fees but did not disclose the expected cost savings. Genting Singapore incurs staff costs of SGD500m-SGD550m pa.

Cutting FY20 Earnings Estimate by 31%..

• Our previous FY20 earnings estimate was essentially based on RWS’ VIP and mass market gross gaming revenue (GGR) falling 70%/60% for three months. We now assume RWS’ VIP and mass market GGR will fall 70%/50% for six months (Fig1). The net impact of the above is to cut our FY20 earnings estimate by 31%.
• Having said that, we leave our FY21 and FY22 earnings estimates little changed (FY21: +2%, FY22: +0%) as we expect the negative impact of Covid-19 to moderate by late-3Q20.

… But Left Long-term Estimates Little Changed

• If Malaysia does not extend the outbound travel ban on its citizens, Malaysian visitors will trickle back to RWS from 1 Apr 2020. Our channel checks in Macau also indicate that China may ease outbound tourism curbs in Apr or May 2020 as the number of new Covid-19 cases there has plunged (16 Mar 2020: 29 new cases).
• We estimate Chinese visitors accounted for 30-40% of RWS’ FY19 GGR. By then, we hope the investment community will cease cutting earnings estimates for Genting Singapore.

Maintaining Annual DPS Estimate at 4cents

• While we expect FY20E EPS to dip nearly 50% y-o-y, we maintain our annual DPS estimate at 4cents as we expect the EPS decline to be transient. Our annual DPS estimate of 4cents implies a manageable FY21 and FY22 DPR of 70-75%. Even though they imply FY20 DPR of 129%, Genting Singapore boasts a huge net cash pile of SGD3.7b or SGD0.31/share as at end-4Q19 that can finance any short-term shortfall in EPS relative to DPS.
• At its current share price, Genting Singapore offers attractive dividend yields of 6.5% pa.

P/BV at New Trough Level

• We ascribed an unchanged 7.8x FY20E EV/EBITDA, which is in line with -1 SD to the 10-year 12M forward EV/EBITDA mean. Even after we cut our FY20 EBITDA estimate by 20%, Genting Singapore is trading at < 5x FY20E EV/EBITDA.
• It is also trading at 0.9x FY20 P/BV, a new trough since RWS opened in 1Q10. If operations recover, which we believe they will, there will be a lot of room for Genting Singapore’s valuations to re-rate.

Source: Maybank Kim Eng Research - 18 Mar 2020