Genting Singapore: Slight earnings miss but overall outlook is still bright; trimmed earnings estimates and lowered TP
- 2QFY23 results slightly below our estimates
- Interim dividend of 1.5Scts declared
- We lower FY23/24F adjusted EBITDA by 6.4/2.3% on higher cost assumptions
- Risk-to-reward still not advantageous at current share price levels; maintain HOLD, TP revised lower to S$1.00
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- Genting Singapore: 4QFY23 below expectations due to a spike in bad debt losses; medium-term prospects remain bright23 Feb 2024
- 2QFY23 results modestly missed our projections, even with a favourable luck factor. GENS posted 2QFY23 adjusted EBITDA of S$252.6m (up 36.0% q-o-q, 81.2% y-o-y), taking 1HFY23 EBITDA to S$452.5m, which formed 43% of our full year forecast. The primary factors that led to GENS’s underperformance were stronger-than-anticipated cost pressures, that stemmed from wage inflation, an increase in utility expenses due to rising energy prices, and bad debt impairment losses that were slightly above our expectations. Notably, without the quarter's unusually high VIP win rate, the group’s adjusted EBITDA would have deviated more significantly from our estimate, settling around an estimated S$214m when normalised for hold.
- Broad-based rebound in revenue was largely in line with expectations. 2QFY23 revenue came in at S$595.9m, with 1HFY23 revenue forming 48% of our full-year estimate. Net gaming revenue climbed to S$407.0m in 2QFY23 (+19.7% q-o-q and 69.1% y-o-y), as the group saw higher rolling volumes and a higher-than-theoretical luck factor during the period following an unlucky first quarter. Specifically, the VIP win rate was 3.9% in 2QFY23, a marked increase from 2.8% in the previous quarter. On a hold-normalised basis, gross gaming revenue inched up by 3.0% q-o-q to S$547.9m during the quarter, closely mirroring the level in 2QFY19.
Growth in the group’s non-gaming segment was even more impressive, rising by 30.7% q-o-q and 76.9% y-o-y to S$188.7m, fueled by an increase in attendance with more tourists visiting Singapore. Daily attendance across all attractions rose to 12,000 visitors in 2QFY23 from 8,500 in the previous quarter.
- Adjusted EBITDA margin improved sequentially to 43.8% in 2QFY23, up from 1QFY23 (39.6%), but fell short of its pre-pandemic range of 45-50% due to the abovementioned cost pressures and the group still operating below optimal scale.
- Interim dividend of 1.5Scts per share declared, up from 1.0Scts in the previous year, in line with our expectations. We expect the group’s dividend distributions in FY23F to match FY19, with a final dividend per share of 2.5Scts.
Other highlights
- Update on RWS2.0. The group recently completed the renovation of Ora (previously known as Festive hotel) in 2QFY23, reintroducing an inventory of 389 premium rooms for the group. In May-23, GENS began renovation works of the Forum, which will transform the space to better cater to the premium cloud, with a wide variety of upscale restaurants, specialty shops, entertainment and unique concept stores. Additionally, the construction of Minion Land at Universal Studios and the Singapore Oceanarium are also progressing well, on track to be completed by end-2024/early-2025. The management did not provide any updates on the other components of RWS2.0 and overall capex outlay but mentioned that construction will definitely begin sometime in 2024.
- Overall traffic and spending trends are encouraging, with local crowd stabilising. The management highlighted that they are seeing a proportionately higher rate of visitation from tourists, and mentioned that apart from June (peak travel month for Singaporeans), visitation from the local crowd has remained resilient. Furthermore, the average spend per visitor continues to be higher compared to pre-pandemic levels. Meanwhile, the group is also not seeing meaningful diversion of traffic to Macau at this juncture.
- GENS appears to be grappling with maintaining its market share in the face of stiff competition from MBS. Although GENS’s gross gaming revenue approached the levels of 2QFY19 this quarter, MBS demonstrated a far stronger performance, achieving gross gaming revenue at 133% of pre-pandemic figures. MBS's earnings metrics further underscore its strong performance: its 2QFY23 adjusted EBITDA reached 125% of 2QFY19’s figures, compared to GENS's 88.6%. While GENS has regained its footing in the VIP segment, it has lost a notable share in the mass segment to MBS, likely driven by MBS's enhanced appeal to the premium-mass crowd.
Earnings update and recommendation
- Trimmed FY23/24F EBITDA by 6.4%/2.3%; maintain HOLD with a lower TP of S$1.00. While our revenue projections are largely in-tact, we lower our EBITDA estimates to reflect our expectation of higher operating costs for the group. Additionally, we adjust our target price down to S$1.00 from S$1.05 previously to factor in negative earnings revisions. While we are still positive on the group’s earnings momentum, we believe the stock is fairly priced at this point despite the recent share price correction. Assuming no material changes to its earnings outlook, we recommend investors go long if the share price declines to the S$0.85 level, as the risk-to-reward set-up would be sufficiently advantageous then.
| 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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