• Cut FY20/FY21 EBITDA projection by 26% and 6%.
• Bagging Japan IR project seems out of the question.
• 7.5-8.0% dividend yield supported by operating cash flows and robust balance sheet.

Headwinds Abound, But Share Price Correction Is Overdone

• We are cutting our FY20/21 earnings before interest, taxes, depreciation and amortisation (EBITDA) estimates on Genting Singapore (SGX:G13) by another 26% and 6% respectively (after slashing our FY20 EBITDA projection in February by 20%), to reflect our expectations of an even more acute drop in tourist arrivals in 2020, and a slight contraction in Singapore’s economy (vs marginal growth previously).
• While we do not see any near term catalysts that could drive a re-rating, (clinching a Japan integrated resorts project is now a remote scenario, and a recovery in earnings might be more drawn-out than expected), its valuation is simply too cheap to ignore, with the stock trading at -2SD (standard deviation) even after factoring our aggressive earnings adjustments.
• Downside from hereon should be limited, supported by Genting Singapore’s highly attractive 7.5-8.0% dividend yield.

Revise Earnings Projection on COVID-19 Developments

• Cutting FY20/FY21 EBITDA estimates by 26% and 6% respectively, to S$606.1m (-49.1% y-o-y) in FY20 and S$974.6m (+60.8% y-o-y) respectively. This is to reflect the following:
  1. A 35% decline in 2020 tourist arrivals, owing to more extensive travel restrictions. A ban on Chinese passport holders which was implemented in February, was recently expanded to France, Germany, Italy, Iran, Korea Spain. Furthermore, travellers from all other countries (effective from 21st March) will be required to serve a 14-day stay home notice. At this juncture, additional travel bans are increasingly plausible, with the situation still deteriorating in Europe and North America.
  2. Our economists now expect Singapore’s gross domestic product (GDP) to contract by 0.5% in 2020, after revising Singapore’s GDP growth to 0.9% in early February. Poor domestic consumer sentiment and the resurgence of new COVID-19 cases in Singapore will lead to markedly lower visitors to GENS’s casino and attractions.

Expect no reduction in FY20 dividend per share, which translates into a dividend yield of 7.5-8.0% at current price levels.

• We anticipate Genting Singapore to generate around S$600m of operating cash flow in FY20 despite COVID-19’s devastating impact on its operations. Coupled with cash on hand (net cash position of S$3.7bn as at December 2019), Genting Singapore is more than able to cover its mandatory capital expenditure (capex) (Resorts World Sentosa (RWS) 2.0 expansion) and dividends.
• Although Genting Singapore does not have a fixed dividend policy, we note that the company has never cut dividends on an absolute basis, not even in 2015 when its EBITDA and net profits plunged by 34% and 70% respectively amid a downturn in the gaming sector.
• Barring a protracted COVID-19 scenario (stretching beyond 3Q19), we do not foresee a reduction in Genting Singapore’s dividend payout.

Japan IR Is a Distant Dream for Now

• We are now less sanguine on Genting Singapore clinching an integrated resort (IR) project in Japan, following the company’s sudden withdrawal from Osaka. Genting Singapore is now participating in the request-for-concept for a Yokohama IR, and will likely also participate in Tokyo if it decides to enter the IR race.
• However, the competition in Yokohama will probably be tougher, with at least five other competitors, namely Las Vegas Sands, Melco Resorts, Wynn Resorts, Galaxy Entertainment and Sega Sammy in the running. Additionally, residents in Yokohama appear to be more opposed to an IR with a casino. The project could be subject to repeated delays, or even be scrapped entirely.
• Competition in Tokyo will not be any less intense, if it pursues an IR, as casino operators would certainly be drawn to the city’s attractive demographics and booming tourism.

Maintain BUY But With Lower TP

• Maintain BUY but with lower Target Price of S$0.80, after factoring in our negative earnings adjustments. Our BUY call on Genting Singapore is largely predicated on its valuation, with the stock trading at - 2SD from its historical average.
• Though it may take time to see a turnaround in Genting Singapore’s earnings, investors who buy in now can reap a highly attractive 7.8% yield.

Source: DBS Research - 20 Mar 2020