• The impact of COVID-19 pandemic, including Singapore’s surprise 1-month lockdown starting this Tuesday, has taken a much heavier financial toll on integrated resort operators.
• Nevertheless, despite our steep earnings cut (-43%) and lower trough valuation of S$0.55 for 2020, our sensitivity analysis on Genting Singapore (SGX:G13) continues to suggest bargain-price valuation and highly favourable risk-reward dynamics for longer-term investors.

Singapore’s Turn to Lock Down, Extending the Financial Pain

• Singapore announced a one-month lockdown starting 7 Apr 20 in reaction to a sharp rise in Covid-19 infections. This is highly unfortunate for the foreign tourist-dependent Resorts World Sentosa, which has already suffered deeply from lockdowns imposed in other countries.
• The latest events will further suppress foreign visitor numbers and the timing of recovery at RWS in 2020 on two counts:
  1. Singapore will remain locked down when other Asean countries end their lockdowns by April; and
  2. Singapore will still impose a quarantine period post lockdown.

We Cut Genting Singapore’s (GENS) 2020-21 Net Profit Forecasts

• We cut Genting Singapore’s 2020-21 net profit forecasts by 43% and 9% as we incorporate the latest financial impact of the drawdown and conservatively assume reduced travel patterns through to 1Q21.
• Our 2021 forecast also take into account that patronage from neighbouring countries may not swiftly recover to pre-Covid-19 levels, given the inadequate fiscal stimulus responses by the respective governments.

Unlikely to Break Into New Lows

• While we brace for the shares to fall, it is improbable that shares will breach below this year’s low of S$0.51, which is already at a historical low and well below our revised trough valuation of S$0.55, which is now based on -2SD to EV/EBITDA or equivalent to financial crisis’ trough valuation levels.

Optimistic on Doses of Valuation Optimism

• We doubt Genting Singapore would fall into a new low and offer the following re-rating doses:
  1. Genting Singapore maintaining good dividends in 2020, backed by net cash of 33 S cents /share;
  2. successful flattening of the infection curve globally by 2Q20; and
  3. a conjecture at this point that the Singapore government may allow integrated resort operators to stretch out the implementation of their mandated S$4.5b expansion plan.

Sensitivity Analysis: EBITDA May Decline 43-77% Y-o-y for 2020

• For illustrative purposes, we simulated a scenario analysis for Genting Singapore on the coronavirus. Our assessment assumes various periods of duration with constant assumptions:
  1. 50/50 split in VIP: mass market GGR for 1H/2H20;
  2. GGR declines 50% y-o-y in the infected quarters, with GGR declining 20% y-o-y in the subsequent one quarter; and
  3. non-gaming revenue falling at a similar percentage.
• Our sensitivity analysis suggests Genting Singapore’s EBITDA may decline 43-77% y-o-y for 2020.
• Genting Singapore trading well below our just-reduced assessed fundamental trough of S$0.55 which assumes trough valuation of 4.6x 2020F EV/EBITDA (-2SD to historical mean). The trough valuation implies 2.4x 2021F EV/EBITDA.

Dividend Buffer

• Cash-flushed Genting Singapore now features an appealing dividend yield of up to 6.1%, and should sustain 3.5-4.0 S cents DPS in 2020-21 (2019: 4.5 S cents) despite sharply lower prospective earnings (yielding 5.5-6.1%).
• In fact, Genting Singapore can still choose to maintain its DPS payout in 2020, given its net cash of S$3.95b (33 S cents/share), and there is still a possibility of it doling out a special dividend should it fail to win a Japan casino concession (results should be known by 2H20).

Recommendation

• Maintain BUY with a deliberately conservative lower target price of S$0.80. Our target price implies 8.9x 2020F EV/EBITDA (-0.5SD below mean) and prospective dividend yield of 5%.
• There will be a substantial jump in our target price when we roll over our target to end-21.

Source: UOB Kay Hian Research - 6 Apr 2020