GenS’ 1QFY20 adjusted EBITDA of SGD146.9m (-48.9% QoQ, -55.4% YoY), were below ours and consensus expectations largely due to lower than expected operating margins coupled with the absence of operations in 2QFY20. We estimate GenS to save up close to SGD150m for its local staffers in FY20 from the Jobs Support Scheme and do not foresee GenS having issues withering through this outbreak given its war chest of close to SGD3.7bn (net cash). We lower our FY20 earnings by -12.8% and maintain HOLD with a higher TP of SGD0.79 (from SGD0.59) based on an EV/EBITDA multiple of 5x (-2SD below 5- year mean) as we roll forward our valuation to FY21.

Quarterly to bi-annual reporting. Pursuant to the amendments to the Listing Rules of the SGX which took effect on 7 Feb 2020, GenS has decided not to continue with quarterly reporting and will instead release financial statements on a half-yearly basis. Nonetheless, GenS has provided a voluntary business update in respect of 1QFY20 which includes the Revenue and EBITDA figures but no EBIT, PBT and PATMI.

Below expectations. GenS reported adjusted (i.e. core) EBITDA of SGD146.9m (- 48.9% QoQ, -55.4% YoY), representing 23.7% and 25.2% of our and consensus full year forecast, respectively. We deem it below expectations largely due to lower than expected operating margins coupled with the likely absence of operations for most of 2QFY20. No dividends were declared.

QoQ/YoY. Revenue decreased by -33%/-36.5% to SGD406.9m largely due to the decrease in traffic from the initial Covid-19 scare back in Feb. Correspondingly, adjusted EBITDA fell -48.9%/-55.4% in line with revenue in addition to lower operating margins.

Extended Circuit Breaker. The Singapore Government had extended the circuit breaker measure by 4 weeks till 1 June (initially planned for 7 Apr to 4 May). As such, GenS has suspended almost all operations at RWS as they were deemed non essential.

Jobs Support Scheme (JSS). In light of the decrease in economic activity due to Covid-19, the JSS essentially provides wage support for local workers up to a period of 9-months until end-2020. The scheme covers employees from all sectors (except government organisations and representative offices) with a 25% wage support up to the first SGD4.6k gross monthly salary. Furthermore, employees within severely affected sectors (e.g. hotels and gated tourist attractions) will be provided with 75% instead of the blanket 25%. Based on GenS’ FY19 salaries of SGD448m paid to c.12.5k employees, this translates to SGD3k/month which is well below the threshold. As such, we estimate GenS to save up close to SGD150m for its local staffers (comprising c.70% of workforce) in FY20, by assuming a non-casino to casino staff ratio of 75:25. We reckon that GenS is on a relatively stronger footing to ride through this outbreak given its war chest of close to SGD3.7bn (net cash).

Japan IR. Following the cessation of participating in the Osaka bid, GenS has been engaged in the ongoing Request for Concept by Yokohama City and is anticipating the launch of the Request for Proposal in 2H20. Other participating bidders include Wynn, Galaxy, Sega Sammy, and Melco. Meanwhile the world’s largest casino company, Las Vegas Sands Corp, has recently pulled out of the Japan IR race as it plans on focusing its resources on other opportunities.

Forecast. We lower our FY20 earnings by -12.8% as we impute lower gaming volumes in the near-term.

Despite the earnings cut, we maintain HOLD with a higher TP of SGD0.79 (from SGD0.59) based on an EV/EBITDA multiple of 5x as we roll forward our valuation to FY21. Our multiple is pegged to roughly -2SD below 5-year mean to reflect the near term impact of Covid-19. Share price may potentially remain subdued in the near-term given the fear of the Covid-19 impact, which does not bode well with GenS. On the other hand, a net cash position of SGD0.31 per share and potential news from Japan pertaining to the casino bill should serve as a support to share price.

Source: Hong Leong Investment Bank Research - 14 May 2020