• A key beneficiary of border reopening, Genting Singapore offers substantial upside as valuations will partially price in a full post-pandemic earnings recovery in 2022. Backed by an already respectable GGR base in 3Q20 even with the country’s borders closed, GGR is likely to further recover. This reflects the nation’s effective containment of COVID-19 infections and broadening access to vaccines in the coming months.
• Maintain BUY and raise target price to $1.08.

Market to Partially Price in 2022 Recovery

• Genting Singapore (SGX:G13) is a major direct beneficiary of COVID-19 vaccine dispensation and the reopening of the economy. Valuations are bound to improve, led by a trifecta of re-rating catalysts, such as:
  1. declining local COVID-19 cases;
  2. partial reopening of borders or travel bubbles; and
  3. mass dispensation of COVID-19 vaccines (with efficacies extending to the recent virus mutations) that would allow countries to achieve herd immunity.
• Valuations will expand to partially factor in Genting Singapore’s return to pre-pandemic earnings dynamics. As an indication, our target price could be as high as S$1.30 if valuation is based on EV/EBITDA mean of 10x to 2022 earnings.

Vaccine Arrival Provides Tranquility

• While the first shipment of the Pfizer-BioNTech’s vaccines arrived in Singapore in December last year, more vaccines including Moderna’s and Sinovac’s are expected to arrive in the coming few months, which would eventually allow the government to achieve its plan to inoculate 5.7m citizens by 3Q21. In endorsing the safety of vaccines, Prime Minister Lee Hsien Loong has also received a jab of Pfizer’s vaccine on 8 January.

Abiilty to Maintain Respectable EBITDA Levels Even Without Meaningful Near-term Border Reopening

• Fast-rising COVID-19 cases globally have again forced several neighbouring countries such as Hong Kong and Japan to declare emergency and impose stricter border controls. As the pandemic is relatively under control in Singapore, the nation is currently implementing several travel bubbles, such as reciprocal green lane arrangements with China and other countries.
• While these travel arrangements may not create much spillover effect for Genting Singapore, and meaningful international footfall recovery will occur only after wide dispensation of vaccines and flattening of the COVID-19 infection curves, we expect Genting Singapore to maintain its 3Q20 GGR of S$213m, which can sustain an attractive dividend yield of 4.7%.

Arrival of Vaccines a Game Changer

• Singapore kick-started its nationwide vaccination drive in December last year, with 40 healthcare workers at the National Centre for Infectious Diseases receiving their first COVID-19 vaccination. The Health Ministry aims to start vaccinating the elderly in February, followed by other Singaporeans and long-term residents who are medically eligible. The vaccine is free for all Singaporeans, long-term residents and long-term work permit holders.
• With the World Health Organization-endorsed vaccines widely dispensed in the country by 3Q21, the market will be more confident that the pandemic will be under control, which will allow the gradual reopening of borders.

Churning Out Respectable Cash Flow From Local Patronage

• While Genting Singapore has historically been highly dependent on international tourists, it pleasantly surprised in its 3Q20 results which revealed that its gaming revenue recovered close to two-thirds of pre-pandemic levels, mostly driven by local patronage.
• We continue to envision that local patronage will cushion earnings in the coming quarters with the government’s effective containment of COVID-19 infection rate, and that Genting Singapore would generate positive EBITDA of S$130m even with the borders remaining essentially closed.

A Lending Hand From Government’s Booster

• Positively, Genting Singapore could gain significant cost savings of about S$143m from the government’s fiscal stimulus programmes, including:
  1. Jobs Support Scheme which has been extended to Mar 21 (total 17 months of wage coverage);
  2. tax savings of about S$20m from the 60% property tax rebate granted by the government in previous Resilience and Solidarity Budgets; and
  3. additional savings of S$2.6m from foreign worker levy waiver and rebates.
• Genting Singapore will also benefit from the S$320m SingaporeRediscovers vouchers set aside by the government for Singaporeans to support local tourism.

S$4.5b Expansion Plan on Track

• Recall that Resort World Sentosa (RWS) had committed to the Singapore government to spend S$4.5b over five years to elevate the resort’s vibrancy. New facilities or attractions have been planned yearly for 2020-25.
• Meanwhile, the government’s plan to convert the neighbouring Pulau Brani area into a destination theme park would not be compromised but would instead complement RWS’ appeal.

GENS Still Seems Keen on Japan IR

• Genting Singapore still seems keen on Japan IR that was mostly shunned by other global gaming operators, but the bidding process has been delayed. Despite the recent withdrawals of most US bidders such as Las Vegas Sands, citing non-viable regulatory framework, Genting Singapore appears keen in pursing the Japan integrated resort (IR) concession (Yokohama).
• Previously, Genting Singapore had also expressed interest to participate in the Tokyo bid when it was being rolled out. However, bidding for the Japan IR licence will not be seen as a positive, given the high capex commitment and Japan regulators’ overly stringent regulatory framework (eg short concession period of five years).
• Nevertheless, the bidding process may be significantly delayed by the COVID-19 pandemic.

Adequate Balance Sheet to Substantially Preserve Dividend Payout

• Given its quarterly EBITDA run rate of S$130m and existing net cash of S$3.6b (30 cents/share), Genting Singapore can still choose to maintain its dividend payout of 3.5-4.0 cents/share in 2021, yielding 4.7%.
• Genting Singapore had committed to pay a final dividend in 4Q20. There is also possibility of Genting Singapore doling out a special dividend should it fail to win a Japan casino concession.

Genting Singapore - Valuation & Recommendation

• No change to our earnings forecast.
• Maintain BUY with a higher target price at 11x 2021F EV/EBITDA which implies +0.5SD above mean, partially factoring in a strong earnings recovery in 2022. Our target price could be as high as S$1.30 if we roll valuation to 2022 and normalise (reduce) our valuation to mean EV/EBITDA of 10x.
• Our optimistic valuation assumes Genting Singapore’s Japan bid would not materialise. Meanwhile, Genting Singapore provides a prospective dividend yield of 4.7%.

Source: UOB Kay Hian Research - 12 Jan 2021