Genting Singapore: 4QFY23 below expectations due to a spike in bad debt losses; medium-term prospects remain bright
- 4QFY23 adjusted EBITDA below expectations due to a significant increase in bad debt losses; revenue in-line
- Final dividend of 2.0scts per share fell short of our expectation of 2.5scts
- FY24/25F estimates trimmed by 0-3% to impute higher run rate of bad debt losses
- Maintain BUY with higher TP of S$1.15 as we raise our valuation peg to reflect optimism on GENS’s medium-term growth trajectory
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Overall business momentum remains sound. Total revenue in 4QFY23 grew by 19.3% y-o-y to S$647m, reaching 107% of 4QFY19 levels. Both gaming and non-gaming segments exhibited strong y-o-y growths of 18.7% and 21.0%, respectively, fuelled by a favourable luck factor (VIP win rate of 3.6% for the quarter), increased footfall, and higher average spending per visitor. The 6.2% q-o-q revenue moderation aligns with seasonal trends, as tourist arrivals typically peak in Q3, while Q4 is also a peak season for outbound travel among Singaporeans.
Operating margin compression largely due to bad debt losses; other cost components remain stable. GENS’s EBITDA margin dropped to 35.2% in 4QFY23, down from 50.1% in 3QFY23 and 46.6% in 4QFY22. A significant portion of the S$92m bad debt losses in 2HFY23 was recognized in 4QFY23. Excluding these losses, EBITDA margin would likely have been in the 44-46% range. The rise in bad debt losses stems primarily from management's strategy of extending credit to VIP gamblers. The group adheres to a conservative accounting policy, whereby bad debts are recorded if payments are not received within a specified period, irrespective of the potential for future collection. However, it's noteworthy that the group often successfully recovers at least a portion of these debts even after such provisions are made. Meanwhile, costs like staff and utilities are currently well-managed.
Final DPS of 2.0scts was below expectations, but prospects for higher future payouts remain positive. Despite missing the expected 4.0scts, we anticipate future dividends to increase alongside earnings. We project a FY24F dividend per share (DPS) matching FY19’s 4.0scts per share (net profit in FY25F should surpass FY19) and a FY25F DPS of 5.0scts, indicating dividend yields of approximately 4%/5% for FY24/25F at current share prices.
Phased renovations and upgrades ongoing across hotels, F&B outlets, attractions, and the casino expected to drive medium-term growth. Key completions in 2025 include the revamped Forum area, Minion Land at Universal Studios, and the Singapore Oceanarium, with new attractions to be introduced annually until 2029. Tenders for the new waterfront development, housing 700 hotel rooms, have been issued, with construction contracts expected to be awarded in 3QFY24. Despite the potential normalisation in VIP win rates and refurbishment of the Hard Rock hotel adversely impacting 2024, the debut of Hotel Ora in 2023, a vibrant schedule of music concerts, leisure and MICE events should continue to drive tourist arrivals (still 29% below 2019 levels in 2023) and increase visitation to RWS. The visa-free travel extension for Chinese tourists is also a positive development, with early 2024 showing a noticeable uptick in visitors from China.
FY24/25F earnings estimates trimmed by 0-3%; maintain BUY with higher TP of S$1.15. Our FY24/25F adjusted EBITDA estimates remain mostly unchanged, as stronger expected top-line growth offsets an increased bad debt loss projection. We raise our target price to S$1.15 as we lift our EV/EBITDA peg to 9.0x FY24F, up from 8.3x FY24F previously, to factor in our optimism on GENS’s medium-term growth prospects.
| FY Dec | 4Q2018 | 3Q2019 | 4Q2019 | % chg yoy | % chg qoq |
|---|---|---|---|---|---|
| Revenue | 665 | 596 | 607 | (8.7) | 1.9 |
| Cost of Goods Sold | (410) | (359) | (358) | (12.8) | (0.4) |
| Gross Profit | 254 | 237 | 249 | (2.1) | 5.3 |
| Other Oper. (Exp)/Inc | (72.6) | (59.4) | (78.6) | 8.3 | 32.3 |
| Operating Profit | 182 | 177 | 171 | (6.2) | (3.8) |
| Other Non Opg (Exp)/Inc | (3.57) | 0.00 | 0.00 | nm | |
| Associates & JV Inc | 1.05 | 1.04 | 0.74 | (29.9) | (29.2) |
| Net Interest (Exp)/Inc | 11.4 | 18.2 | 18.2 | 60.2 | 0.2 |
| Exceptional Gain/(Loss) | 1.44 | 3.09 | 0.00 | nm | (100.0) |
| Pre-tax Profit | 192 | 200 | 189 | (1.3) | (5.1) |
| Tax | (41.9) | (40.7) | (33.6) | (19.7) | (17.4) |
| Minority Interest | 0.00 | 0.00 | 0.00 | nm | |
| Net Profit | 150 | 159 | 156 | 3.8 | (1.9) |
| Net profit bef Except. | 149 | 156 | 156 | 4.8 | 0.0 |
| EBITDA | 294 | 278 | 288 | (2.0) | 3.4 |
| Margins | |||||
| Gross Margins (%) | 38.3 | 39.7 | 41.0 | ||
| Opg Profit Margins (%) | 27.3 | 29.7 | 28.1 | ||
| Net Profit Margins (%) | 22.6 | 26.7 | 25.7 |
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