PublicInvest Research

Author: PublicInvest   |   Latest post: Wed, 1 Apr 2020, 9:06 AM


Genting Berhad - GENS: Stable 4Q But Lower Visitation To Hit 1Q20

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Genting Singapore (GENS), a 52.7% subsidiary of Genting Bhd (GENT), reported a 3.8% increase in 4QFY19 net profit as the impact of lower gaming revenue was offset by better cost efficiency and lower effective tax rate. At adjusted EBITDA level, the results were in line with consensus but below ours, accounting for 94% of FY19F forecast. Since January 20, GENT’s share price has plunged 13% due to the coronavirus outbreak. Given that integrated resorts are highly dependent on tourist arrivals, earnings performance for GENT is expected to be poor in 1Q20. Nevertheless, this should gradually recover once the scare dies down (note that number of new cases are 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 catalyst includes the potential winning of one of the three integrated resort licenses in Japan, which may be made known by 2H20. GENS proposed a higher final DPS of 2.5 cents (4QFY18: 2 cents). This brings a total DPS of 4 cents for FY19, translating to an attractive yield of 4.6%.

  • 4QFY19 revenue fell 8.7% YoY while net profit improved by 3.8% YoY. The gaming segment, which made up of 64% of group revenue, posted a 13% decline in revenue as geopolitical uncertainties and weak consumer confidence affected overall business volume. Singapore mass market was affected by the increase in casino entry fee while the VIP market was dragged by the trade tension between the US and China. Through a series of productivity and efficiency initiatives implemented in early 2019, margin has seen some improvement, resulting in 4QFY19 net profit rising by 3.8% YoY.
  • Impairment on trade receivables was lower, falling from S$35.6m in 4QFY18 to SGD17.7m in the current quarter. Although impairment for the full-year has risen from S$58m in FY18 to S$101m in FY19, it remains within its comfortable level. Note that in FY16, impairment was significantly higher at S$235m on lower revenue of S$2.2bn.
  • Downward revision in earnings. GENT’s share price has fallen sharply as the coronavirus outbreak disrupts travel plans and the tourism industry in this region. Tourist arrivals at Resorts World Genting (RWG) and 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 outdoor theme park at RWG could boost visitor arrivals in 2H20, thereby providing an offsetting effect. Meanwhile, we cut our FY20F earnings estimate for GENS by 25% as we expect a drop in RWS visitation to affect both gaming and non-gaming profits. Note that Chinese tourists accounted for the bulk of Singapore’s tourist arrivals at 19% in 2019. Consequently, we reduce our FY20F earnings estimates for GENT by 16%, with our SOTP-based TP correspondingly reduced to RM7.80 (RM8.70 previously).

Source: PublicInvest Research - 13 Feb 2020

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