GenS’ 4Q19 core net profit of SGD176m (+13.4% QoQ, +15.6% YoY) was within our and consensus expectations. Proposed final dividend of 2.5 cents per share (FY19: 4 cents per share) which will likely be sustained moving forward. QoQ/YoY recorded improved earnings largely attributed to operational efficiency initiatives implemented in early 2019 while YTD showed a fall largely due to change in accounting treatments i.e. impairment and depreciation. With the increasing number of infected patients from Covid-19, 1QFY20 will be impacted as both international and local visitors will be avoiding crowded spaces. We lower our FY20 earnings by -26.7% as we impute lower volume of rolling and non-rolling chips volume. Maintain BUY with a lower TP of SGD0.96 (from SGD1.14) based on a FY20 EV/EBITDA multiple of 9x.

Within expectations. GenS reported 4QFY19 core PATMI of SGD176m (+13.4% QoQ, +15.6% YoY), which brings the FY19 sum to SGD705.1m (-8% YoY), representing 102.7% and 103% of our and consensus full year forecast, respectively.

Dividends. Proposed final dividend of 2.5 cents per share (subject to the approval of shareholders at the next AGM), bringing FY19 total dividend to 4 cents per share (FY18: 3.5 cents per share). We are pleasantly surprised by the increase in DPS, which will likely be sustained moving forward.

QoQ. Core earnings increased to SGD176m (+13.4%) despite relatively flat revenue (+1.9%) largely due to improved margins from better VIP luck factor (3.4% vs 2.6%) and operational efficiency measures.

YoY. 4Q19 recorded higher core earnings of +15.6% despite a drop in revenue (- 8.7%) largely due to improved margins from operational efficiency initiatives implemented in early 2019 and a lower effective tax rate (17.8% vs 21.8%).

YTD. Core earnings fell -8% to SGD705.1m despite revenue only decreasing -2.3% largely due to an increase in impairment on trade receivables and higher depreciation. Note that higher impairment was attributed to a change in accounting treatment, requiring management taking a prudent stance towards the increase in VIP volume. Higher depreciation can be attributed to the shortened useful life of certain assets in preparation for RWS2.0 and is expected to taper off gradually in FY21.

Covid-19 outbreak. Standing at 47 cases of infected patients, Singapore has one of the highest numbers of patients outside of China. The Ministry of Health had also declared the outbreak to Code Orange which means the disease is severe and spreads easily but not widely. As such, visitorship will be hit in largely in 1QFY20 as both international and local visitors will be avoiding crowded spaces. Nonetheless, management does not foresee the need for the casino to be closed.

Forecast. We lower our FY20 earnings by -26.7% as we impute lower volume of rolling and non-rolling chips volume in the near-term amidst the Covid-19 outbreak.

Maintain BUY with a lower TP of SGD0.96 (from SGD1.14) based on a FY20 EV/EBITDA multiple of 9x, as we impute the earnings cut. The plunge over the past year was due to the gaming tax hike in Singapore coupled with the recent Covid-19 outbreak; however at current level, we feel that the risk to reward had turned appealing. The possible venture in Japan may also act as an upswing factor in the near-term. Furthermore, GenS is supported by a decent dividend yield of 4.6%.

Source: Hong Leong Investment Bank Research - 13 Feb 2020