“The stock is currently trading above pre-pandemic levels even though a complete turnaround in earnings is still some time away,” says Sum in his Feb 21 report.
“Furthermore, we believe that valuation multiples could compress, considering uncertainty over the return on investment (ROI) profile of Resorts World Sentosa (RWS)2.0 and the management’s conservative capital management,” he adds.
To Sum, Genting is one of the most profitable diversified gaming operators in a duopoly market. The group’s RWS is one of the largest fully integrated resorts in Southeast Asia and holds an “enviable position” in Singapore, which is a vibrant tourism hub with a strong domestic market.
“Not only is competition in Singapore relatively less intense compared to other markets due to the duopoly structure in the country, RWS also has better business (higher percentage of non-gaming revenue) & geographical diversification (in terms of source markets) and generally enjoys higher ebitda margins compared to peers,” notes Sum.
Going into the FY2023 to FY2024, Sum expects Genting’s earnings momentum to sustain as the earlier-than-anticipated reopening of the important China market should enable footfall at RWS to normalise by late-2023/early-2024. The pent-up demand should also translate to higher spending per visitor in the near-term, he says.
“Further ahead, the addition of more gaming area, attractions/retail/dining options, hotel capacity and improved accessibility into Sentosa will drive earnings growth. Additionally, top-line growth and operating margins could surpass expectations if Genting Singapore successfully executes its strategy to attract more premium mass market customers,” he adds.
Citi’s Choi has also upped his target price to $1.20 from $1.04 as Genting’s results for the 4QFY2022 stood in line with his expectations. The analyst kept his “buy” call as he sees Genting as one of the major re-opening beneficiaries in Singapore.
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“Management believes dividend growth should be aligned to earnings growth, but the [estimated] 100% payout ratio in 2022 is unlikely to be repeated,” says Choi.
“We expect FY2023 distribution per share (DPS) to increase to 4.0 cents (implying a 4% dividend yield), which is the most Genting has ever paid out,” he adds. “We roll forward our valuation to FY2024 when deriving our new target price. This leads us to raise our target price from $1.04 to $1.20.”
“Genting is currently trading at [around] 8.1x FY2024 EV/ebitda, largely on par with the historical average of [an estimated] 8.0x,” he continues.
The research team at OCBC Investment Research (OIR) has kept “hold” on GENS with a higher fair value estimate of $1.09 from $1.06.
In their report, the team sees China’s reopening as a catalyst to the stock but this could take time due to elevated airfares and constraints of air capacity.
“Recessionary fears and competition from regional markets could also hinder travel demand,” says the team.
As at 2.46pm, shares in Genting are trading 0.5 cent lower or 0.5% down at 99.5 cents.
