(Feb 13, RM5.39)
Maintain outperform with a lower target price (TP) of RM7.80: Genting Singapore Ltd, a 52.7% subsidiary of Genting Bhd, reported a 3.8% increase in its fourth quarter of financial year ended Dec 31, 2019 (4QFY19) net profit as the impact of lower gaming revenue was offset by better cost efficiency and a lower effective tax rate. At the adjusted earnings before interest, tax, depreciation and amortisation level, the results were in line with the consensus but below ours, accounting for 94% of our FY19 forecast (FY19F). Since Jan 20, Genting’s share price has plunged 13% due to the Covid-19 outbreak. Given that integrated resorts are highly dependent on tourist arrivals, Genting’s earnings performance is expected to be poor in 1Q of 2020 (1Q20). Nevertheless, this should gradually recover once the scare dies down (note that the number of new cases is already slowing down). Hence, we believe investors should look beyond the temporary setback in earnings. We maintain our “outperform” rating with a revised TP of RM7.80. Near-term catalysts include the potential winning of one of the three integrated resort licences in Japan, which may be made known by the second half of 2020 (2H20). Genting Singapore proposed a higher final dividend per share (DPS) of 2.5 cents (4QFY18: two cents). This brings a total DPS of four cents for FY19, translating into an attractive yield of 4.6%.
4QFY19 revenue fell 8.7% year-on-year (y-o-y) while net profit improved by 3.8% y-o-y. The gaming segment, which made up 64% of group revenue, posted a 13% decline in revenue as geopolitical uncertainties and weak consumer confidence affected overall business volume. Through a series of productivity and efficiency initiatives implemented in early 2019, there was some margin improvement, resulting in 4QFY19 net profit rising by 3.8% y-o-y. Impairment on trade receivables was lower, falling from S$35.6 million for 4QFY18 to S$17.7 million (RM52.79 million) for the current quarter. Although impairment for the full year rose from S$58 million for FY18 to S$101 million for FY19, this remained within its comfortable level.
Genting’s share price has fallen sharply as the Covid-19 outbreak disrupts travel plans and the tourism industry in the region. Tourist arrivals at Resorts World Genting (RWG) and Resorts World Sentosa (RWS), particularly in 1Q20, are expected to be affected with visitors avoiding crowded places to reduce risk of contraction. However, we believe the opening of the outdoor theme park at RWG could boost visitor arrivals in 2H20, thereby providing an offsetting effect. Meanwhile, we cut our FY20 earnings estimate for Genting Singapore by 25% as we expect a drop in RWS visitation to affect both gaming and non-gaming profits. Consequently, we reduce our FY20 earnings estimates for Genting by 16%, with our sum-of-the-parts-based TP correspondingly reduced to RM7.80 (RM8.70 previously). — PublicInvest Research, Feb 13