GenS’ 1HFY20 core net loss of -SGD63.3m (from SGD373.8m YoY) is below ours and consensus expectations due to larger than expected losses incurred in 2QFY20 from the Circuit Breaker and the expectation of a weak recovery 2HFY20. Despite the resumption of the operations in RWS, footfall remains weak given the ongoing scare of Covid-19 coupled with limited operating capacity at attractions and casino. GenS will continue carrying out cost rationalisation efforts to mitigate the losses expected to be incurred. We now estimate FY20 to record losses of -SGD207.5m and lower our FY21/22 earnings by -36.9%/11.6% as we impute a slower recovery moving forward given the uncertainty of Covid-19. Maintain HOLD with a lower TP of SGD0.75 (from SGD0.79) based on an EV/EBITDA multiple of 7x.

Quarterly to bi-annual reporting. Pursuant to the amendments to the Listing Rules of the SGX which took effect on 7 Feb 2020, GenS has decided to release financial statements on a half-yearly basis. A voluntary business update was given in respect of 2QFY20 (includes only the Revenue, EBITDA, and Net profit/(loss) figures) in addition to the financial statements for 1HFY20.

Below expectations. GenS reported core net loss of -SGD116.5m (from SGD53.2m QoQ, from SGD166m YoY), bringing 1HFY20 core net loss to -SGD63.3m (from SGD373.8m YoY) which is below ours and consensus expectations. We deem it below expectations due to larger than expected losses incurred in 2QFY20 from the Circuit Breaker and the expectation of a weak recovery 2HFY20 (our FY20 profit estimate stood at SGD227m while consensus at SGD233m). 1HFY20 EI sum of - SGD53.4m was stripped off largely comprising of impairments carried out in 2QFY20.

Dividends. None declared (2HFY19 declared 1.5 cents per share).

QoQ/YoY. Revenue plunged -97.6%/-98.5% to SGD6.5m from the halt in operations during the Circuit Breaker. Subsequently, a core net loss of -SGD116.5m was recorded (from a core net profit of SGD53.2m/SGD166m QoQ/YoY) in tandem with the drop in revenue coupled with the high fixed cost structure.

YTD. Revenue fell -68.5% to SGD274.4m largely due to the Circuit Breaker in 2QFY20 coupled with the initial scare of Covid-19 which began earlier back in Feb. As such, a core net loss of -SGD63.3m was recorded (from a core net profit of SGD373.8m) due to the drop in revenue coupled with the high fixed cost structure.

Outlook remains challenging. Despite the resumption of the operations in RWS, footfall remains weak given the ongoing scare of Covid-19 coupled with limited operating capacity at attractions and casino. The casino is operating at c.50% physical capacity with SOPs in place such as a maximum of 3 to 4 players per table (no standing bets allowed), alternating usage of slot machines, and entry to the casino is limited to members only. Moving forward, the operating environment remains challenging given RWS’ reliance on international tourism. Attractions such as USS will likely remain loss making in the near-term as visitation was previously dominated by international visitors (comprising c.75% of volume). Nonetheless, GenS will continue carrying out cost rationalisation efforts to mitigate losses. With regards to Japan, GenS continues to monitor developments on the RFP by Yokohama City in 2HFY20.

Forecast. We now estimate FY20 to record losses of -SGD207.5m (from SGD227) and lower our FY21/22 earnings by -36.9%/11.6% as we impute a slower recovery moving forward given the uncertainty of Covid-19. Furthermore, we lower our FY20 dividend estimates conservatively to 2.0 cents (from 3.5 cents) as no dividends were declared in the recent quarter.

Post earnings adjustments, we maintain HOLD with a lower TP of SGD0.75 (from SGD0.79) based on an FY21 EV/EBITDA multiple of 7x (from 5x) which is roughly - 1SD below 5-year mean as our previous multiple was perhaps too conservative given GenS’ strength war chest of SGD3.9bn (Net cash of SGD3.7bn as of FY19) to wither through this downturn. Share price may potentially remain subdued in the near-term given the fear of the Covid-19 impact, which does not bode well with GenS. On the other hand, a net cash position of SGD0.31 per share and potential news from Japan pertaining to the casino bill should serve as a support to share price.

Source: Hong Leong Investment Bank Research - 7 Aug 2020