Analysts temper optimism over Genting Singapore amid near-term headwinds

SINGAPORE (May 10): Analysts are lowering their forecasts on Genting Singapore (GENS) amid short-term pressures expected from lower gaming revenues and higher capex for the redevelopment of Resorts World Sentosa (RWS).

This comes after GENS after market close on Thursday announced a 5% drop in earnings for the 1Q19 ended March to $205.5 million, from $217.2 million a year ago.

Earnings per share (EPS) fell 6% to 1.70 cents for 1Q19, from 1.80 cents a year ago.

Total 1Q19 revenue was 5% lower at $640.4 million, led by an 8% decline in gaming revenue.

See: Genting Singapore posts 5% drop in 1Q earnings to $205.5 mil on lower gaming revenue

“The softness (in gaming revenue) was largely due to global uncertainties that affected its top-end business, while mass sees medium-term competition from other regional peers,” says CGS-CIMB Research analyst Cezzane See in a note on Thursday.

CGS-CIMB is lowering its target price for GENS to $1.06 from $1.11 previously, while keeping its “add” rating.

“Management expects VIP rolling market to be challenging this year given macroeconomic concerns stemming from the ongoing US-China trade talks. In light of this, the group will remain cautious in extending credit for the VIP rolling business,” says OCBC Investment Research analyst Carmen Lee in a Friday report.

Meanwhile Lee notes that GENS’s marketing efforts continue to focus on the regional premium mass segment, which faces stiff regional competition.

OCBC is lowering its fair value estimate by 6% to $1.23, but keeping its “buy” call on GENS.

In a report on Friday, RHB Group Research highlights that GENS’s market share has fallen 5 percentage points to 44% in 1Q19.

In addition, RHB sees muted topline growth ahead for GENS.

“We understand that management has turned prudent in its credit extension, given the global geopolitical effect on the economy. Hence, we expect slower growth in topline, as its VIP market share is not anticipated to grow in the absence of a generous credit policy,” it says.

RHB is maintaining its “neutral” rating on GENS, but lowering its target price to $1.02 from $1.08 previously.

Meanwhile, DBS Group Research notes that the market has adopted a cautious view on GENS’s $4.5 billion redevelopment of RWS, given the large capex and uncertainty over returns in 5-6 years’ time.

However, analyst Mervin Song says he is more positive on GENS’s ability to generate a return, due to its strong track record since RWS was opened close to 10 years ago.

“Furthermore, we believe the market is underappreciating the impact from a near doubling of its hotel room inventory at RWS, which translates to more guests staying at the property, boosting both gaming and non-gaming income,” Song says.

DBS is keeping its “buy” call on GENS, but lower its target price to $1.20, from $1.54 previously, on the back of a weaker near-term outlook.

At the same time, the analysts are heartened by the fact that GENS’s management during the last earnings call clarified that they have no intention of conducting a rights issue to raise funds.

In fact, OCBC’s Lee notes that GENS is “swimming in net cash”.

“Given the group’s high net cash balance, healthy net operating cash flows ($1.1 billion in FY18), and the potential to take on significantly more debt, we believe that a rights issue is not likely at this point in time,” says Lee.

Shares in Genting Singapore closed 1.6% lower at 93.5 cents on Friday.

According to OCBC valuations, this implies an estimated price-to-earnings (PE) ratio of 17.4 times and a dividend yield of 3.7% for FY19F.